Retirement Plans for Small Businesses

Choosing the best retirement plan to meet the needs of your business can be challenging.  Whether you are self-employed or own a small business, finding a retirement plan that fits your company's needs is essential.  As a business owner, having the right plan can help you maximize your retirement savings and take advantage of big tax breaks while still adding value to your employees looking to jump tart their own retirement savings

Types of Plans

Retirement plans are usually either IRA-based (like SEPS and SIMPLE IRAs, or "qualified" like 401(k)s, profit-sharing plans, and defined benefit plans.  Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA requirements in order to qualify for their tax benefits.  Also, qualified plan assets must be held either in a trust or by an insurance company.  With IRA-based plans, your employees own (i.e., "vest" in) your contributions immediately.  With qualified plans, you can generally require that your employees work a certain number of years before they vest.

A summary of important differences outlined here below:

2015	401(k)	SIMPLE IRA	SEP IRA
Who can contribute	Employee; Employer optional	Employee & Employer	Employer only; must contribute for all eligible employees
Max Employee Contribution	$18,00 w/$6,000 catch-up if over 50 years old	$12,500 w/$3,000 catch-up if over 50 years old	Not applicable
Employer Contributions	Optional, up to 100% of an employee’s compensation with a $53K cap via match, profit share, or other employer contribution	Required match of 100% on the first 3% of participating employee contributions or 2% of all eligible employee salaries	Optional, but only way to fund; up to 25% of an employee’s pay with a $53K cap
Vesting Timing for Employer Contributions	Multi-year options or immediate	Immediate	Immediate
Access to Funds before age 59 ½	Penalty-free loans or 10% penalty for early withdrawal	25% penalty for withdrawing within first 2 years of participating; 10% thereafter	10% penalty for withdrawal before age 59 ½

Compare Small Business Retirement Plan

Post Updated April 25, 2015