Business Owner Advise And Guidance

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Which Retirement Plan Suites You?

All retirement plans are not the same. In fact, there is such a wide variety of retirement plans that learning more about your choices is a good idea. Here’s a brief look at the different plans and what they have to offer.

The Traditional 401(k). Many people have this type of retirement savings plan, and it works like this: The plan is funded with pre-tax dollars taken out of your paycheck (through payroll deductions). If you’re lucky, your company will match your level of contribution or even make contributions on your behalf – after all, the employer contributions are tax-deductible.

There are several variations on the traditional 401(k) theme…

The Safe Harbor 401(k). A byproduct of the Small Business Job Protection Act of 1996, the Safe Harbor plan combines the best features of the traditional 401(k) and a SIMPLE IRA, making it very attractive to business owners. With a Safe Harbor plan, an owner-operator can avoid the big administrative expenses of a traditional 401(k) and enjoy higher contribution limits. The Safe Harbor plan allows for employers to make matching or non-elective contributions. Typically, employers match contributions dollar-for-dollar up to 3% of an employee’s income.

The SIMPLE 401(k). Designed for small business owners who don’t want to deal with retirement plan administration or non-discrimination tests, the SIMPLE 401(k) is available for businesses with less than 100 employees. Like a Safe Harbor plan, the business owner must make fully vested contributions (up to 3% of an employee’s income).

The Solo 401(k). Combine a profit-sharing plan with a regular 401(k), and you have the Solo 401(k) plan, a retirement savings vehicle designed for sole proprietors, owners of mom-and-pop businesses, and even those who have a small, legitimate business “on the side” while they work for another employer.

The Roth 401(k). Imagine a Traditional 401(k) fused with a Roth IRA. Here’s the big difference: you contribute after-tax income to a Roth 401(k), and when you reach age 59½, your withdrawals will be tax-free (provided you’ve had your plan for more than five years). The annual contribution limits are the same as those for a Traditional 401(k) plan.

You can roll Roth 401(k) assets into a Roth IRA when you retire – and you don’t have to make mandatory withdrawals from a Roth IRA when you turn 70½. With a standard 401(k), you have to roll over the assets to a traditional IRA and make the required withdrawals.

And then there are SEP-IRA, SIMPLE IRA and Keogh plans…

The SEP-IRA. This employer-funded plan is designed for businesses with 25 or fewer employees. The employer contributions are 100% vested from the start, and the employer can supplement the SEP-IRA with another retirement plan.

The SIMPLE IRA. This is like a SIMPLE 401(k) – a small business retirement plan with mandatory employer and optional employee contributions. But in this plan, there is one big difference for the business owner. If the business is not doing well, the owner can reduce plan contributions. The employer contributions are still 100% vested from the beginning.

The Keogh Plan. The Keogh is designed for professional practices and family businesses with ten or fewer highly paid employees. It can be either a defined benefit plan, pension-style income for the employee in retirement, or a defined contribution plan with a generous annual contribution limit and freedom for employees to make their own investment decisions.

Did you know you had so many choices? If you are an employer, you may not have realized you have such an array of choices in retirement plans. But you do, and asking the right questions may represent the first step toward implementing the right plan for your future or your company.

Call us today at 855-644-4401 to go over options for your business retirement plan or to discuss our money management services.