Is Now The Time For Your Small Business To Launch A Retirement Plan?

To determine whether now is the time for your small business to launch a retirement plan, you should know the factors to consider and which retirement plans may be best for your business and employees.

Factors to Consider Before Launching Retirement Programs

Whether it’s the right time for your small business to launch a retirement plan depends on a number of factors. Here are a few to consider:

1. Employee retention: Offering a retirement plan can be an effective way to attract and retain employees, particularly if your competitors offer similar benefits.
2. Tax advantages: Depending on the type of retirement plan you choose, you may be able to take advantage of tax benefits that can reduce your business’s tax liability.
3. Costs: There are often costs associated with establishing and administering an ongoing retirement plan, so it’s important to consider if the benefits outweigh the costs.
4. Employee preferences: Survey your employees to determine their interest in a retirement plan, as well as their preferences regarding plan design and features.

Retirement Plans for Small Business Owners

If you do decide to launch a retirement plan, there are a number of options available. Each has its own features and requirements, so it’s important to consult with a financial advisor to determine which plan is best for your business.

401(k) Plan

A 401(k) plan can be a great option for small businesses that want to provide their employees with a retirement savings plan. Here are some key things to know about setting up a 401(k) plan for your small business:

1. Find a provider: Look for a 401(k) provider that specializes in small business plans. There are many options available, including providers that offer low-cost plans with no setup fees.
2. Determine your contributions: Decide how much you want to contribute to your employees’ 401(k) accounts. You can choose to match a percentage of your employees’ contributions, make a fixed contribution or a combination of both.
3. Choose your plan design: There are several plan designs available, including traditional 401(k) plans and safe harbor plans. Each plan has its own contribution limits and eligibility requirements.
4. Educate your employees: Make sure employees understand the benefits of participating in a 401(k) plan and how it works. Consider offering financial education resources to help them make informed decisions about their retirement savings.
5. Stay compliant: Follow all of the IRS rules and regulations for 401(k) plans, including annual testing to ensure the plan is not discriminatory and filing Form 5500 annually.

SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) individual retirement account (IRA) is a retirement savings plan designed specifically for small businesses. Here are some key things to know about setting up a SIMPLE IRA plan for your small business:

1. Eligibility: Your business must have a maximum of 100 employees who have earned a minimum of $5,000 in compensation in the previous year to be eligible for a SIMPLE IRA plan.
2. Contributions: Both you and your employees can make contributions to the plan. You can choose to make either a matching contribution of as much as 3% of an employee’s compensation or a non-elective contribution of 2% of an employee’s compensation.
3. Plan administration: SIMPLE IRA plans are easy to set up and administer. You can use a financial institution or a third-party administrator to handle the paperwork and record keeping.
4. Employee participation: You must offer the plan to all eligible employees, and they must have the opportunity to make contributions. However, employees are not required to participate.
5. Contribution limits: The annual contribution limit for a SIMPLE IRA plan is $15,500 for 2023. Employees who are age 50 or older can make catch-up contributions of up to $3,500.

SEP IRA

Simplified Employee Pension (SEP) IRAs are designed for self-employed individuals and small businesses with employees. Here are some key things to know about setting up a SEP IRA plan for your small business:

1. Eligibility: Your business must have one or more employees or be self-employed to be eligible for a SEP IRA plan.
2. Contributions: Both you and your employees can make contributions to the plan. Currently, you may contribute as much as 25% of your compensation or $66,000, whichever is less. Though employees cannot make contributions, you need to contribute the same percentage as you contribute for yourself.
3. Employee participation: While employees cannot make contributions to a SEP IRA plan, you must offer the plan to all eligible employees. Eligible employees include those who are at least 21 years old, have worked for your business for a minimum of three of the previous five years and have made at least $750 in compensation for the year.
4. Contribution deadlines: SEP IRA contributions are due by the tax filing deadline for the year in which you are making the contribution.

How SECURE Act 2.0 Impacts Retirement Plans

The SECURE Act 2.0 is a proposed legislation that was signed into law in 2019. The new proposal includes several provisions that could impact retirement plans in the following ways:

• Expansion of auto-enrollment: The proposal would make it easier for small businesses to enroll employees automatically in retirement plans. This provision would help increase retirement plan participation rates, particularly among workers who might not otherwise save for retirement.
• Increase in required minimum distribution (RMD) age: The RMD age has increased to age 73 for IRAs.
• Expansion of catch-up contributions: The proposal would allow individuals aged 60 to 63 to make additional catch-up contributions to their retirement accounts. This provision would help older workers who may be behind on retirement savings to make up for lost time.

Overall, the SECURE Act 2.0 aims to make it easier for individuals to save for retirement and increase retirement plan participation rates, particularly among small businesses and low- and middle-income workers.

Contact Us at SD Mayer

Launching a retirement plan can be a smart investment in the long-term success of your business and the financial well-being of your employees, but it’s important to carefully consider your options and seek expert advice before making any decisions. Contact us at SD Mayer today to learn more about whether now is the right time for your small business to launch a retirement plan.