K.E.M. Strategic Partners LLC | 35 Village Road, Suite 100 | Middleton MA 01949 | P. 978-560-3404  |  F. 978.560.1623

 
 

Caring  |   Independent   |   Practical
Financial Services

Retirement Read Time: 3 min

Retirement Plan Choices for Small Businesses

As a small-business owner, figuring out retirement choices can be a little intimidating. How do you pick the most appropriate retirement plan for your business as well as your employees?

There are a number of choices when creating retirement plan strategies for you and your employees. Here, we will review three of the most popular for small businesses: SIMPLE-IRAs, SEP-IRAs, and 401(k)s. Read on below to learn more about each type of retirement plan.

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before implementing or modifying a retirement plan.

SIMPLE-IRAs. SIMPLE stands for Savings Incentive Match Plan for Employees. This is a traditional IRA that is set up for employees and allows both employees and employers to contribute. If you’re an employer of a small business who needs to get started with a retirement plan, a SIMPLE-IRA may be for you. SIMPLE-IRA’s provide some degree of flexibility in that employers can choose to either offer a matching contribution to their employee’s retirement account or make nonelective contributions. In addition, employees can choose to make salary reduction contributions to their own retirement account. Some small business owners opt for a SIMPLE-IRA because they find the maintenance costs are lower compared with other plans.1,2

Distributions from SIMPLE-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

For a business to use a SIMPLE-IRA, it typically must have fewer than 100 employees and cannot have any other retirement plans in place.1

SEP-IRAs. SEP plans (also known as SEP-IRAs) are Simplified Employee Pension plans. Any business of any size can set up one of these types of retirement plans, including a self-employed business owner. Like the SIMPLE-IRA, this type of retirement plan may be an attractive choice for a business owner because a SEP-IRA does not have the start-up and operating costs of a conventional retirement plan. This is a type of retirement plan that is solely sponsored by the employer, and you must contribute the same percentage to each eligible employee. Employees are not able to add their own contributions. Unlike other types of retirement plans, contributions from the employer can be flexible from year to year, which can help businesses that have fluctuations in their cash flow.3

Much like SIMPLE-IRAs, SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

401(k)s. 401(k) plans are funded by employee contributions, and in some cases, with employer contributions as well. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.1

1. IRS.gov, March 4, 2021
2. Investopedia.com, April 25, 2021
3. Investopedia.com, February 23, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

7 Father’s Day Financial Hacks for Dads

7 Father’s Day Financial Hacks for Dads

From diapers to vacations to groceries, emergency trips to the doctor and more, planning for your financial future is some superhero-level stuff when it comes to family finances.

Your Shifting Risk Tolerance

Your Shifting Risk Tolerance

Time and market performance may subtly and slowly imbalance your portfolio.

An Arm and a Leg

An Arm and a Leg

A visit to the hospital can be painful, for both your body and your wallet. Don’t let it be more painful than it has to be.

 

Have A Question About This Topic?







Thank you! Oops!

Overlooked Ways to Add Diversity to Your Portfolio

It’s an exciting time for American investors. Recent years have seen a boom in Americans investing in the stock market, with Goldman Sachs estimating U.S. households will spend $400 billion on equities in 2021, averaging an eyebrow-raising 44% allocation of their total assets to stocks. Between new technologies (like mobile trading apps) lowering the bar to entry and “meme stock” trends raising awareness, it’s no wonder so many people are waking up to the power and potential of investing.

Financial Fixes: From Health Scare to Financial Care

A medical scare can be a wake-up call in terms of your physical and financial health. Here’s how to strengthen your finances

Mortgages in Retirement

Explore the benefits and drawbacks to paying off your mortgage prior to retirement with this article.

View all articles

Interested in a Fuel Efficient Car?

Estimate how many months it may take to recover the out-of-pocket costs when buying a more efficient vehicle.

Home Mortgage Deduction

Use this calculator to assess the potential benefits of a home mortgage deduction.

Bi-Weekly Payments

This calculator estimates the savings from paying a mortgage bi-weekly instead of monthly.

View all calculators

5 Smart Investing Strategies

There are some smart strategies that may help you pursue your investment objectives

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.

View all presentations

Bridging the Confidence Gap

In the world of finance, the effects of the "confidence gap" can be especially apparent.

Timing Your Retirement

This short video illustrates why knowing when to retire can be a crucial part of your strategy.

When Special Care Is Needed: The Special Needs Trust

A special needs trust helps care for a special needs child when you’re gone.

View all videos