Providing a retirement plan is one of the most effective ways business owners can help themselves and their employees prepare for retirement.
One common myth among business owners is that offering a retirement plan to employees is not affordable. However, small business plans do not have to be complicated or expensive. Three types of retirement plans are popular with small businesses: SEP, SIMPLE IRA, and 401(k). Understand your options and the benefits available under each type of plan, and you will find the one that is the right fit for your company.
Types of Small Business Retirement Plans:
SEP Plan:
A Simplified Employee Pension (SEP) plan is an IRA-based retirement plan funded only with employer contributions. The employer may decide from year-to-year whether to make contributions as well as an amount to contribute. SEP contributions are deposited in an eligible employee’s traditional IRA. A SEP plan could be suitable for both a self-employed business owner and an employer with employees.
SIMPLE IRA Plan
A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA plan is another IRA-based retirement plan option for small businesses. Only businesses with 100 or fewer employees may establish a SIMPLE IRA plan. A SIMPLE plan is like a 401(k) plan in that employees can defer a portion of their salary.
Unlike a 401(k) plan which requires complex nondiscrimination testing, SIMPLE IRA plans have no testing requirements.
In exchange for the more straightforward administration requirements, SIMPLE IRA plans have lower contribution limits than 401(k) plans and require the employer to make a matching or nonelective contribution for eligible employees.
A SIMPLE IRA plan would not be appropriate for a self-employed individual with no employees.
Small Business 401(k) Plan
A 401(k) is a savings vehicle established by a business to help the business owner and employees save for retirement. Employees can defer a portion of their salary into the plan, and many businesses choose to match a portion of the employees’ contributions, helping retirement savings grow even faster.
A 401(k) plan provides all the same tax advantages (tax deductions, tax-deferred earnings, and tax-credits) as the other types of plans, but a 401(k) plan also offers unique benefits:
- Higher contributions limits than SEP or SIMPLE IRA plans
- Option to make Roth (after-tax) contributions
- Option to take a loan from retirement savings
- Typically, a broader range of investment options
With the budget-friendly, easy-to-use 401(k) solutions from Ubiquity Retirement + Savings, small business owners can take advantage of all the benefits of a 401(k) plan, including our Single(k)® plan for businesses that employ only the owners (and spouses) or only employees who wouldn’t be eligible to participate in the plan.
