Retirement Account Options For Small Businesses


The Bottom Line: Take Action Now

The Best Retirement Plan Options for Small Business Owners

Set up a small business retirement plan before your state forces you to do so. No matter what type of retirement account youre considering, try setting it up by December 31st of the current year so that any contributions to the plan count towards the current tax year, and nobody has to wait until the next year to enjoy the tax advantages.

Meeting the December 31st deadline allows any employer matches done before next years Tax Day or the date that the plan holder files taxes whichever is first to still count for the current tax year. Theres no reason to delay any longer the tax breaks that you and your employees can get today.


Retirement Planning From The Experts

Are you a small business in or near Westlake Village in need of retirement for you and/or your employees? Look no further than The Ryding Company! Here are a few facts about your local retirement planning experts:

  • » 40+ years as a leader in the ERISA plan administration community
  • » Served expertise and quality compliance administration for over 2,500 businesses
  • » Currently, manage over 1,000 ERISA retirement plans!

To find the retirement plan perfect for your local small business, keep reading to learn more about the options available to you! To speak with one of our retirement planning experts, call us directly at .

Savings Incentive Plan Plan For Employees

A SIMPLE IRA is available to any small business but according to the IRS, its generally best suited to those with 100 employees or less. With this plan, the employer is required to contribute money each year for each employee by either matching up to 3% of compensation or making a 2% nonelective contribution. Employees can contribute but arent required to and theyre always 100% vested in their SIMPLE IRA money. For 2019, the maximum employees can contribute is $13,000, or $16,000 if theyre aged 50 or older.

Like SEP IRAs, SIMPLE IRAs have the same tax treatment as traditional IRA accounts. Early distributions are subject to the early withdrawal penalty and income tax regular retirement distributions after age 59 1/2 are taxed at ordinary income tax rates only. Both SEP IRAs and SIMPLE IRAs require the account owner to begin taking required minimum distributions at age 70 1/2 to avoid a tax penalty.

SIMPLE IRAs are easy to set up and maintain. But they have lower annual contribution than SEP IRAs or solo 401s . You also dont have the option to not make contributions for your employees with a SIMPLE IRA. This could be problematic if your cash flow is irregular from year to year.

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Why Employers Should Offer Professional 401 Portfolio Advice

Getting professional advice for 401 investments can have a significant impact on retirement outcomes, making professional advice a high-value benefit to employees. According to another study conducted by TIAA, 68 percent of plan participants who take advantage of advice offerings choose to save more, revisit their portfolio allocations, or rebalance their portfolio . Clearly, professional advice can change poor financial behaviors. Advice and education force participants to think about their retirement goals and look at what they could be doing differently to reach those goals. So, the benefit of professional advice and education for the employee is obvious, but why take on that responsibility as an employer?

For starters, nearly one in three employees report that personal finance issues have been a distraction for them at work. And nearly half of that group say they spend three hours or more per week thinking about or dealing with those personal finance issues . These distracted employees are not only less productive while theyre on the clock, but theyre also more likely to take time off of work to deal with their financial issues, directly affecting you, the employer . If youre wondering about the return on investment youll get by offering financial wellness education or personalized advice, that statistic alone should convince you of its value.

How Financial Advisors Can Ease Retirement Plan Participant Stress

What Business Retirement Plan Options If I Have a Small Business ...

· Keep savings on track

Only one in five non-retirees have done detailed calculations to determine how much income theyll need in retirement versus how much money their retirement account could potentially generate. Financial advisors can help bridge that gap, forcing employees to think critically about what they need to do to become more retirement ready. How long is the plan participants desired retirement? Do they envision frequent travel in retirement? Are they willing or able to work part-time while retired? After answering these questions, financial advisors can help employees align their retirement goals with their current savings plan.

· Construct and manage a portfolio

Most retirement plan participants arent experts on investments, stocks, and bonds, and with a huge variety of portfolio options and models, its easy to get overwhelmed and confused. Enter the financial advisor. Sitting down one-on-one with a financial advisor can help employees determine if their model portfolios too aggressive, not aggressive enough, or just right. Education about how 401 assets fit in with other portfolio assets can help employees meet their overall objectives and better understand what is going on in the market.

· Keep emotions in check

· Diversify the portfolio*

· Know when to begin withdrawing

*Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

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A Solo 401 May Be Better Than A Sep Ira

The solo 401 even has another more subtle benefit that may make it a better pick than the SEP IRA for low earners or those who are using their business as a side gig.

The solo 401 allows you to contribute up to 100 percent of your salary, up to the employees annual maximum. In other words, in 2022 the first $20,500 that you earn can be stuffed away in the solo 401, saving you on taxes. In contrast, the SEP IRA allows you to contribute at a 25 percent rate, so youd have to earn substantially more to reach the same contribution level.

On top of this benefit, the solo 401 allows you to max out the employer contribution, too. Once you hit the employee maximum, you can still contribute at a 25 percent rate from your companys remaining profits, up to the annual maximum. So in contrast to the SEP IRA, youre able to contribute more to your retirement plan at a lower level of income, all else equal.

Those are some of the biggest differences between the solo 401 and SEP IRA, but it can be useful to understand the full range of differences between the two popular programs.

Solo Or Individual 401

A solo 401 is a 401 thats designed just for sole proprietors. With this type of small business retirement plan, you make contributions as the employer and the employee. As the employee, you can contribute up to $19,000 for 2019, or up to $25,000 if youre 50 or older. As the employer, you can contribute up to 25% of compensation, unless youre self-employed. In that case, you have to use a special formula to calculate your employer contribution for the year. The formula is based on your net earnings after youve deducted one-half of your self-employment tax and your employee contributions.

Of all three small business retirement plans discussed so far, a solo 401 is the most difficult to set up and the most expensive to maintain. But you get the benefit of a tax deduction for your contributions, as well as generous annual contribution limits. You could also supplement your 401 with contributions to an IRA.

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Regardless Of Their Size Small Businesses Have Many Options For Employee Retirement Plans They Can Offer As Part Of Their Benefits Package

  • Offering retirement plans to employees is a good way to attract and retain top talent in your industry.
  • The IRS provides tax incentives to small businesses that offer retirement plans.
  • There are several different plan types for small businesses, from simple plans that anyone can open to employer-sponsored plans for businesses with two to 100 employees.
  • This article is for small business owners looking to learn more about retirement plan options for their employees.

Choosing the right retirement plan for your small business starts with researching all the options available to you and your employees. Analyze who your employees are and what retirement plan options make the most sense for them, then choose one that aligns with your small businesss needs and values.

Several different types of small business retirement plans are available, and plan providers have affordable, accessible options designed for even very small businesses. There are also some tax advantages that can offset the expense of sponsoring a small business retirement plan.

You can choose from simple plans that anyone can open, plans designed for self-employed people with no employees, or employer-sponsored retirement plans for small businesses that employ anywhere from two to 100 workers. Read on to learn more about the small business retirement plan options available to you and some tips to help you decide which ones you want to discuss with your CPA or financial advisor.

The 4 Types Of Retirement Plans For Small Businesses

Retirement Plans for Small Business Options & How can they help My Business?

Depending on the size and scope of your small business, there are four main types of retirement plan options to choose from. They include the following:

  • » Simplified Employee Pension Plan
  • » Savings Incentive Match Plan For Employees
  • » Self-Employed 401 Plan
  • » Standard 401 Plan

In this blog, well be focusing on the first three retirement plan offerings since they are best suited for local small businesses, while traditional 401 plans incur high costs and feesmaking them better for larger options.

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Compare Fidelity’s Small Business Plans

We offer retirement plans for businesses of every shape and size. Whether you are a sole proprietor, C corporation, S corporation, or partnership, chances are we have a plan that can work for your business. Visit the following product pages for more information. If you have a separate retirement plan established and would like to invest the assets in a Fidelity brokerage account, you may be interested in an Investment-Only Retirement account.3

no employeeswith only a few employees25 to 100 employees100 or fewer employeesWho contributesAccess to assets4Contribution featuresFees

Interested in a Fidelity HSA® for your small business? Learn more

The Top Retirement And Savings Account Options For Small Business Owners

Small businesses may have fewer benefit resources, but there are still great retirement and savings account options they can provide their employees. Hereâs what you should know.

Key takeaways:

  • Small business owners should help their employees become more financially secure to boost overall satisfaction and stay competitive
  • Good savings plan options for small businesses include:
  • Retirement: defined contribution plans and nonprofit plans
  • Health Savings Accounts: contributions made pre-tax for medical expenses
  • Emergency Savings Accounts: employer-sponsored plans to help employees save for sudden costs

Businesses in all industries offer benefits packages to stay competitive. This can be more challenging for small business owners. Often, they donât have all the financial resources to offer everything theyâd like to provide workers.

Todayâs employees want more than health insurance and salaries. Retirement and other savings options are now some of the most important benefits companies can offer, and people will make the difficult decision to leave a job to find these benefits elsewhere if theyâre not offered at their current company. Obtaining financial security isnât easy, especially as people are currently struggling with the higher prices of goods due to increasing inflation.

We will walk through why itâs so important to offer financial savings benefits as a small business owner and some of the best options you have to make that happen.

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Simple Ira Withdrawal Rules

The beginning date for RMD for all IRAs, including SEPs and SIMPLE, is age 72. As a participant, you generally must pay income taxes on the amount you withdraw from a SIMPLE IRA. You may also be required to pay additional taxes:

  • A 10% tax is required if you withdraw under the age 59 1/2 unless you have a qualifying exception .

  • A 25% tax is required if you withdraw within two years from when you first participate in a SIMPLE IRA plan.

What Are Some Retirement Plan Options For Small Businesses

Retirement Plan Options for Small Businesses

In the past, the high costs and administrative burdens of managing a traditional retirement plan was often too much for small companies. However, thanks to modern providers, 401 plans may be more affordable and accessible for small businesses and their employees. As a small business owner, some of your retirement plan options include:

  • Defined Benefit Plans

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Retirement Accounts For The Self

One of the downsides of being self-employed is that you dont automatically get the perks offered by many employers, such as a 401 plan with a company match on your contributions. But in some regards, self-employed retirement plans can vastly exceed those regular options.

Here are three of the most popular defined contribution plans and who could find them useful.

Tax Advantages For Small Businesses

The government offers the Retirement Plans Startup Costs Tax Credit to help small businesses offer retirement plans to their employees. It allows you to deduct up to 50% or $500 of plan startup and administration costs for the first three years of your plan.

If you match or make contributions to employee accounts, that money is also tax deductible. It allows you to contribute to your own retirement savings plan, and like your employees, you have the option of elective deferrals that may allow you to lower your income tax bracket. Also, depending on your income, you may qualify for the Savers Credit.

Additional tax credits may soon be available, as federal lawmakers seek to make retirement plans more accessible and affordable for small business owners. For example, one bill under consideration would provide a tax credit to small businesses that auto-enroll their workers in their retirement plans.

Key takeaway: The government incentivizes small businesses to provide employee retirement plans with tax credits. You can deduct up to 50% or $500 of plan startup and administration costs for the first three years of your plan.

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Which Retirement Accounts Are Best For You

Phew! OK, we just threw a lot of information about a bunch of different retirement accounts at you. But the question remains: Which retirement accounts work best for you?

Honestly, the answer depends on your situation. An employee at a large company has different options than a freelance photographer. Youll want to meet with a qualified investment professional who can help you make the right decision.

But no matter who you are, we recommend investing 15% of your gross income for retirement in good growth stock mutual funds .

Here are our general guidelines for how to make the most of your retirement account options, especially if you have access to a workplace plan.

Reason : You Anticipate Selling Your Business When Its Time To Retire

Retirement Options for Small Business Owners

Dreaming of that golden parachute when just the right investor comes along at just the right time? Thats a gamble. When the day comes, theres no guarantee youll find someone to carry on your legacy.

Reality: Will it sell for what you need? Hoping to sell your business down the road? We hate to raise this specter, but technology is evolving faster than Alexa can tell you what the weather is like outside. What if technology makes your product or service obsolete tomorrow? Were pretty sure the person who invented Wite-Out or the business model for Blockbuster or the BlackBerry didnt anticipate the tech evolution that would put those products on the Remember When shelf.

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Traditional Simple And Solo 401 Plans

401s are a popular retirement account option that comes in three general varieties:

  • Traditional 401

  • SIMPLE 401

  • Solo 401

  • Most businesses are eligible for 401 plans, but administrative fees and stringent requirements can make it difficult for small businesses to manage them alone. However, with the right plan provider, small businesses can offer 401 plans to their employees.

    Simplified Employee Pension Plans

    Simplified Employee Pension Plans, or SEP-IRAs, are a simple retirement plan option for small businesses, self-employed workers, or freelancers. A key distinction is that employers make all of the contributions to SEP-IRAs. They must make the same level of contribution for every employee. Small businesses, including sole proprietorships, S corporations, and partnerships can establish SEP-IRAs.

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    A Guide To Small Business Retirement Plans

    Running a small business or being self-employed can offer flexibility, freedom and control over your earning potential. While the perks are plentiful, theres one thing thats usually missing when you own a small business: an employer-sponsored retirement plan.

    Self-employed people dont have 401s, and small business owners tend not offer them, citing the time and cost to set up and administer them. The good news is there are several other retirement plan options available to small business owners. If you have yet to begin saving for retirement as an entrepreneur, heres how you can change that.

    Iras Are Still An Option For The Self

    How Can I Help My Employees Save for Retirement?

    Even if you participate in a retirement plan as a self-employed individual including the SEP IRA or SIMPLE IRA you still have the ability to participate in a traditional IRA or a Roth IRA.

    So you can max out your contributions in any of the above retirement plans and still take max advantage of your own personal IRA. For 2022, that means you can contribute up to $6,000 each year

    Youll enjoy all the benefits of an IRA, including tax-deferred growth, and can take advantage of what many experts see as the best retirement account going the Roth IRA.

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