As with SEP IRAs, employer contributions are tax deductible, and employees’ contributions can be made pretax and in 2017 were limited to $12,500. SIMPLE IRA: For businesses with less than 100 employees, these plans are designed for both the employer and the employee to contribute to the employee’s retirement.Contributions are made by the employer only and are tax-deductible as a business expense. You can contribute any amount each year – up to $54,000 in 2017 – but you must contribute the same percentage amount to yourself and to other employees as well. SEP IRA: For small-business owners and for self-employed people, the SEP IRA is a no-cost, easy-to-set-up retirement plan.The returns aren’t much, but at least it usually beats inflation. Two caveats: You can’t invest more than $15,000 total, and your investments are limited to government bonds. A key advantage is you can take your money out with no penalties, although you’ll pay tax on the earnings you withdraw if you take it out before you’re 59-½. Designed mostly for young savers and the self-employed, you can open an account for as little as $25 and contribute as little as $2 at a time. MyRA: If you have no other retirement plan, and you don’t expect to contribute much, this is the account for you.Why are you setting up a retirement plan in the first place? Is it to shelter money from the IRS for you and your employees until a certain point? Or is it to attract new employees and offer a retirement benefit to existing employees?īelow is a list of seven types of popular retirement plans for small business owners, ranked in order from the simple and least costly to the more complex and expensive: Do you, as the employer, plan to make all the contributions to the retirement plan, or do you want the employees to contribute, or do you want to share the contributions between the company and the employee? The cost of setting up a plan can be minimal, such as in MyRA or SEP IRA, or a few thousand dollars or more to establish and maintain a 401(k) or a pension. Is it just you and your spouse? Do you have a business partner? Or do you also plan to offer the plan to employees? How many employees? Is it just you or employees too? The first thing is to decide who you want to cover.And you could get a tax credit of up to $500 just to set up the plan! But where do you start? The good news is that there are several plans available to small-business owners from IRAs to 401(k)s to cash plans and pensions.
“We have clients ranging from dentists to truckers.”
“There is really no age requirement for setting up a small business retirement plan,” says Karen Shapiro, CEO of Dedicated Defined Benefit Services. You’ve built your own company from the ground up, and now it’s time to start thinking about a retirement plan for yourself and your employees.
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