Contrary to popular opinion, you can have a retirement plan for your business, even if you do not have employees. These types of plans are called by many different names such as Solo(k), Single(k), etc. A 401(k) plan for an owner-only business will offer the owner the opportunity to put the most away for retirement.
Many small businesses (defined as less than 100 employees) often think that they cannot afford a retirement plan, but there are multiple affordable options to consider, even with a small number of employees.
The amount you and your key employees want to put away for retirement determines which retirement plan is the best way for you to save at work.
A 401(k) plan offers the most amount of money you can put away, at $49,000 (includes employer and employee contributions). Although other retirement plans, such as a SIMPLE IRA, may offer lower limits of what you can save, they have other benefits and may be a better fit for your company’s budget, what you’d like to contribute and specific needs.
Many employers use company-sponsored retirement plans as a retention tool. What better way to encourage your employees to participate in this valuable benefit by offering a matching contribution on behalf of your employees?
Don’t worry if you’re not interested in offering a match though. Nice as it is, not all small business retirement plans require a match. Depending on your needs, you may consider a plan such as a 401(k) plan, which does not require a match. Other retirement plans, such as a SIMPLE IRA requires a match, but may be more cost-effective and easier to manage.
This question will help us assess whether an IRA or a 401(k) plan is right for your small business.
Here are the definitions of these items for you:
Customizable eligibility
Eligibility is defined as the time your employees are eligible for the plan. For example, you can determine that an employee cannot participate in this benefit until he or she has worked with the company for a specified amount of time (3 months, etc.). Certain retirement plans allow you to customize this feature, while others have this preset.
Hardship withdrawals
In this economy, hardship withdrawal is certainly a feature to consider. Since employer-sponsored retirement plans allow employees to put away money, pre-tax, you can incur penalties by withdrawing before your retirement age (59.5 years old).
A hardship withdrawal is not like a plan loan. The withdrawal may be difficult to get, and costly if you receive it. Congress realized that it had to put some guidelines in place in order to allow plan withdrawals in a limited number of hardship situations.
Not all retirement plans offer this option, if you are interested in allowing this, you will need to indicate it on the questionnaire.
Roth option
A Roth option allows after-tax contributions to fund tax-free retirement. This option is great for younger or investment-savvy employees. Not all retirement plans offer a Roth option, ones that do should offer it free of charge.
Self-directed brokerage option
This option allows employees to put their retirement savings in a brokerage account, where they can invest in individual stocks, bonds and other widely traded securities; rather than the traditional mutual fund lineup. This feature is appropriate for small businesses with a high number of investment-savvy employees, such as a financial advisory firm; or for a company where the owner and key employees want to take advantage of this feature.
Most small businesses have different considerations for their employer-sponsored retirement plan; their principal concerns fall into two categories:
Cost
As a small growing business, you may be most concerned about cost. A fixed-fee plan is usually the best way to go so you always know what you’re spending on your retirement plan.
With advances in technology, a retirement plan for your company is now more affordable than ever; and you don’t have to compromise on the basics: good service, comprehensive plan coverage and a wide range of investments.
Click “Cost” if finding a good “bang for the buck” plan is what interests you the most.
Flexibility
Some small businesses need more flexibility in their 401(k) plan due to their organizational structure or as a retention tool for key executives.
Oftentimes, you need customized features to make your employees or owners happy – and we’ve got a solution tailor-made for small businesses.
For those of you who are more concerned about the ability to put the most money away or if you simply need a more flexible plan with custom features, click “Flexibility” as your option.
