In this #MakeAnImpact series, we’ll explore the AB(K)s of company retirement plans. Retirement plans are a crucial aspect of attracting and retaining top talent along with small business owners who want to save for retirement and take advantage of the tax benefits.
There are various company retirement options available to employers today. Let's take a closer look at each of these options.
- SIMPLE or SEP Plans
One option for small businesses or self-employed individuals is the SIMPLE or SEP plan. These plans allow employees to contribute a portion of their salary to a tax-advantaged account, while the employer is required to make matching or non-elective contributions. SIMPLE plans are designed for small businesses with 100 or fewer employees, while SEP plans are similar to traditional IRAs but are specifically designed for small businesses or self-employed individuals.
- Pension Plans
Pension plans, also known as defined benefit plans, provide a guaranteed income to employees during retirement. These plans are funded by the employer, the benefit commits the employer to make regular contributions to a pool of money that is set aside in order to fund payments made to eligible employees after they retire.
Pension plans have become less common in recent years, but they can still be a valuable and powerful incentive for attracting and retaining top talent. Another option is cash balance plans, which combine elements of both defined benefit and defined contribution plans. Employers should carefully consider their financial outlook and the needs of their personnel before making the decision to add one of these plans.
K. 401(k) and Solo(k)s
401(k) plans allow employees to contribute a portion of their salary to a tax-advantaged account, which is then invested in a variety of options such as stocks, bonds, and mutual funds. Employers may also offer a matching contribution, which can be a great incentive for employees to save for retirement.
For self-employed individuals or small business owners with no full-time employees other than themselves and their spouse, a Solo 401(k) can be a good option. These plans have higher contribution limits for both employee and employer contributions compared to traditional 401(k)s.
When deciding which retirement plan to choose, it's important to carefully consider the specific features and requirements of each type of plan. This is where your ELEMENT Business Finance team can guide you through the process. As the employer you can offer several options, ELEMENT takes the time to research and compare each one to determine which is the best fit for your financial goals and needs.
Remember, retirement planning is a long-term commitment and requires ongoing funding and administration. It's important to start saving as early as possible to take advantage of compounding interest and give yourself and your employees the best chance for a comfortable retirement.
Retirement planning is not just about securing your financial future; it's also about making an impact that supports and helps you attract and retain a talented team. Our ELEMENT business finance team will help you make an informed decision and create a retirement plan that works for you.