Retirement plans for small businesses
Retirement plans for small businesses come in a variety of options for the small business owner. The size of your small business, such as profitability or number of employees will determine what small business retirement plans you will want to consider. Before the Economic Growth and Tax Reconciliation Act (EGTRA) of 2001, options for small business owners were rather limited. Plans were either expensive or only allowed for minimal annual contributions; the act opened the door for more affordable options.
As an owner of a small business, it is important to plan for the future of your business as well as the future of your finances. Retirement planning for small business involves determining your retirement nest egg goal. To arrive at this figure you must take into account your current salary, inflation rates, social security, taxes and annual returns. It might sound complicated at first but a financial calculator makes it very simple. Financial calculators can be found online or at your local investment advisor\'s office.
Desired funding of the retirement plan will determine what type of plan you want to use. Different small business retirement accounts have varying contribution limits. 401K plans have limits of $13,000 while SEP IRAs have contribution limits up to $40,000 in some instances. Affordability and flexibility of funding is another thing you will want to consider when deciding which type of plan to use. The types of plans available for small business range from complicated to very simple. Keogh plans are the most complicated plans that a business can adopt. Other plans available are the 401K plans, traditional and individual, and SEP IRA plans. 403B plans are available for not-for-profit organizations such as hospitals and teaching institutions.
An individual 401K is one of the small business retirement plans that are very attractive. An individual 401K plan is highly flexible, allows for higher contributions, and is cost efficient for owner operated small businesses. Tax benefits like deductible contributions and tax-deferred growth are great benefits of this type of plan. Traditional, Roth, and SEP IRAs are other options to be considered when looking at small business retirement plans. A traditional IRA allows for deductible contributions that are set at $3,000 annually. Contributions to a Roth IRA are not tax deductible but withdrawals after age 59 1/2 are tax-free. SEP IRAs allow for larger contributions than traditional and Roth IRAs. Visiting with a financial consultant that has experience with retirement plans will help determine what plan is right for you.
Small Business Retirement Plans for Larger Businesses
SEP IRAs are an option for a small businesses with employees as well as those without employees. There are some different requirements for small businesses with employees that want to utilize SEP IRAs than those without employees. Traditional 401Ks are another option available for small businesses. Traditional 401Ks are subject to higher administration costs that may offset the tax benefits that accompany these plans. Keogh plans are an option for sole proprietorships, partnerships or a limited liability company (L.L.C.). With Keogh plans the employer makes all the contributions on an employee\'s behalf. Keogh plans are more restrictive than individual 401Ks; a financial advisor can help you determine which plan is right for you.