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Do you have, or expect to have, any "common law employees"? Do you want your employees to be able to contribute their own money too? Which is a higher priority—maximum contributions or simple administration? So it should come as no surprise that funding your retirement will likely fall on your shoulders.
But what type of retirement plan is the right fit for your business? There are several types to choose from and the options can be confusing.
For example, some small-business retirement plans are better for sole proprietors, while others may be more appropriate for businesses with up to employees. We will focus only on the first 3, which are generally more suitable for very small businesses—typically, employees or less.
Each of these plans has different characteristics—such as the ability to cover employees, contribution limits, and administrative responsibility, to name a few. To choose the right plan for your business, you need to understand the nuances of these plans and match them to your priorities e.
Understanding the differences in the plan types is an important exercise. Why have a small-business retirement plan? Here are 3 very compelling reasons: Your plan not only helps secure your future—it may be the primary way your employees can help secure theirs.
Offering a plan helps make your business competitive when it comes to attracting and keeping good employees. There are potential tax benefits to offering a plan, because plan contributions for the business owner are deductible as a business expense. Consider your options Each of the 3 small-business retirement plans may offer certain tax advantages, including: Contributions are made by the employer only and are tax deductible as a business expense.
A SIMPLE IRA is for businesses with or fewer employees and is funded by tax-deductible employer contributions and pretax employee contributions [similar to a k plan]. A Self-Employed k plan is a tax-deferred retirement plan for self-employed individuals that offers the most generous contribution limits of the 3 plans, but is suitable only for businesses with no "common law" employees, meaning any person working for the business who does not have an ownership interest.
Choosing the right plan takes careful consideration "If you know what you are trying to accomplish with a retirement plan, it may be relatively straightforward to determine which plan is most appropriate for the business," Hevert says.
Is it critical that employees be able to contribute to the plan? Knowing what you want and need ahead of time is a key component, because each plan has its advantages and disadvantages.A financial plan is a forecast of future performance for a business, usually prepared using spreadsheet software.
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