“Too complicated and too expensive.” That’s the response planners often hear from small business owners on the subject of company retirement plans.
The good news is that you have better options today than you may realize. And the reality is, most business owners cannot afford not to establish a retirement plan. Even if you assume that you’ll easily sell your business when you retire and live on the proceeds, it’s risky to assume that it will work out that way.
The plan you choose depends on many factors, including the number of employees you have and whether you want to help them with retirement; how long you have before your own retirement; your tax situation; what you currently have saved for retirement; and how much money you’ll need for the retirement you envision.
A wide array of plans are available to small business owners: traditional defined benefit pension plans, 401(k) plans, profit-sharing, Simplified Employee Pension Plans (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) are among them. We can help you analyze the options to determine which plan is best for your situation.
For example, a 401(k) plan may cost more to administer than a SEP or SIMPLE, but it also provides more liability protection for the owner’s assets. A SEP is easy and inexpensive to establish and maintain, but owners must fund contributions for eligible employees at the same rate they fund their own accounts. In contrast, employees are responsible for funding their SIMPLE accounts, but the owner must match employee contributions up to 3 percent of the employee’s pay or contribute up to 2 percent for every eligible employee.
No matter which plan you and your financial planner choose, start your retirement plan as soon as possible. In the early years of your business, cash flow may not be on your side, but time is. Take advantage of it.
