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Which Retirement Plan Best Fits Your Small Business?

Lucere Legal helps small business owners with company retirement plan selection

If you own a small business, you know just how important planning can be. The difference between a good business and a great business may rest entirely on their laying out a set of concrete goals and a means to achieve them–not to mention being ready to respond to unexpected events and emerge unscathed.

Similarly, you already have a plan in place for your retirement, something to see you and your loved ones through when the time comes to pass the reins to someone new. But you’re not just the average Joe off the street: you’re a business owner. Though it depends on the particulars of your company and your employees, you may feel you bear the responsibility of setting in place a framework for those you employee to craft their own retirement plan.
You may do this for a number of reasons–a desire to attract the best talent or a simple compassion for those who make up the lifeblood of your business being high among them–yet actually putting a plan in place can be daunting. Will the system you put in place be fair to your employees? Will the tax benefits outweigh the erosion of your company’s liquidity?

To know what is right for your company, consider some of the most common retirement options for small businesses:

  • SIMPLE IRA. SIMPLE (Savings Incentive Match Plan for Employees) IRAs aren’t your traditional 401(k) plans. Your employees are limited to a smaller yearly contribution that your business is required to match. Owners of this planning are unable to borrow money from their account and no tax-free options akin to a Roth exist.
  • SEP IRA. Looking for something without too many bells and whistles? A SEP (Simplified Employee Pension Plan) IRA involved zero employee contributions, meaning the employer makes all the investments. While there are no loan, catch-up contributions, roth, or profit-sharing options to this kind of plan, a SEP IRA allows earnings to grow tax-deferred and, most importantly, requires significantly more relaxed tax reporting.
  • Traditional or Solo 401(k). The classic, most commonly recognized kind of plan, a 401(k) entertains a great popularity with small business owners. But is it for you? Employers have the option to both match employee contributions and provide them loans in return for tax benefits. Employees over the age of 50 benefit from a versatile set of tools for planning their retirements, including catch-up contributions and Roth.
    If your business qualifies, consider a Solo 401(k) for their notably higher contribution levels.

As experienced business lawyers, we can help you sort through the options that are right for you, your family and your business and we are glad to work as a team with the professionals setting up your retirement plan. If you don’t already have someone to set up your retirement plan, we would be glad to give you a referral to the awesome people we work with. Call us today to schedule a small business consultation session so we can help you identify the right retirement plan options for you, your family and your business.

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The plain-English guide for Minnesota small business owners

When it comes to business, ignorance isn't bliss; ignorance is risk.

There's a handful of legal topics that business owners should be familiar with, at least on a rudimentary level, to reduce the risk of having something horrible come out of left field.

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