Simply Junior

Present alternatives help small business owners save a noteworthy amount of money in tax-deferred small business retirement plans. If you’re seeing or running your own business, think big when it comes to saving for retirement. Oftentimes with all the excitement around setting up a company, one tends to forget about retirement plans for them and their employees. Don’t disregard setting up an own retirement plan because fortunately, there are major benefits to small business retirement plans that compensate the time it might take to set one up.

Small business retirement plan does not only allow a business owner to sock away a considerable amount for the future, but it also takes a sizeable tax deduction as well. Small business retirement plans can help fill in any personal savings gaps toward a more financially secured future. What are the benefits of getting small business retirement plans today for business owners? First, they may be able to take a tax deduction just for saving money for the future, secondly, all earnings on their investments grow tax-deferred until withdrawn, and they can include their spouse if they work together and also have a major advantage to offer employees nowadays or when their business gets bigger.

And what about the employees of your small business, are you finding it hard to have savvy employees working for you? The problem might just be on the small business retirement plan presented; it might not be appealing to your employees. So where does one start? Here is a rundown of small business retirement plans option for your employees, based on 2006 rules and requirements, the best plan however, depends on ones needs:

Simplified Employee pension Plan (SEP IRA)

For a handful of employees and looking for a plan that is really low cost and low maintenance, consider this plan. The SEP IRA is funded with tax-deductible employer contributions that cover all eligible employees. Contributions from employees are not allowed. There is no “plan document” and filing annual reports with IRS are not needed. Contributions can differ from year to year, so if your business hits the lean, you are not locked in.

Savings Incentive Match Plan for Employees (SIMPLE IRA)

These retirement plans are good for your employees because they allow employee contributions. They command an employer match, only problem is it will not allow you to sock away much for yourself. Annual contributions for 2006 are generally restricted to $10,000 plus an employer matching contribution. If you have a small business with less than ten people, then these small business retirement plans for your employees is a good way to get started.

There are many other small business retirement plans offered for both the owner and employees that can do a lot of good to the business. Also remember that in addition to small business retirement plans, you can also fully fund an IRA and create catch up contributions if you are fifty years old or older.

You find it hard to get employees for your small business.

Maybe the problem is your retirement plan. If it stinks, or you don’t even have one, qualified people aren’t interested to work for you.

Scout around and study the many retirement plans for small business. Zoom into one that suits you, your business and your employees’ needs plus that’s of good quality and value. You’ll hook the employees you want.

Here are several retirement plans for small business that might work for you and your business.

1. Simplified Employee Pension Plan (SEP IRA)

If you’ve a small number of employees and are looking for a plan that’s really low cost with low maintenance, consider this plan. It’s very easy and cheap to set up and administer.

The plan is funded with tax-deductible employer contributions, and you must cover all eligible employees. Employee contributions are not allowed.

There’s no “plan document” and you don’t need to file annual reports with the IRS. Contributions can vary from year to year; good times you contribute more, lean time less. And you don’t have to make contributions every year.

Eligibility – any business owner or self-employed person. For employees, those who have worked for you for 3 of the past 5 years and who earned at least $500 from you in previous year.

Contribution Limits – 25% of compensation (if you’re an employee of your own corporation) up to $46,000; 20% of self-employment income (if self-employed) up to $46,000.

Employees cannot contribute but you the employer must contribute to eligible employee accounts the same salary percentage you contribute to your own.

2. SIMPLE IRAs

These plans are good for your employees and allow employee contributions. The plans mandate an employer match.

Trouble is, a SIMPLE IRA won’t let you “cart away” as much for yourself. Your annual contributions are generally limited to $10,500 ($13,000 if you’re 50 or older) plus an employer matching contribution (up to 3% of your salary).

If you’ve less than 10 employees, a SIMPLE IRA is a great way to get started.

Eligibility – employer with 100 employees or less who doesn’t maintain any other retirement plans. For employees, those who have ever earned more than $5,000 in any 2 years prior and who will earn at least $5,000 in current year.

Contribution Limits – mandatory dollar-for-dollar employer match of up to 3% of salary (or as low as 1% for some years) or mandatory employer contribution equal to 2% of salary (limited to maximum contribution of $4,600) regardless of employee’s contribution (if any).

For employees, $10,500 plus employer match up to 3% of salary. (If you’re self-employed, you can contribute $10,000 plus match to your own account). Additional $2,500 if you’re aged 50 or older.

3. Profit Sharing Plans

A profit sharing plan gives you a slice of your company’s profits. You make annual contributions to your account, but because they’re based on your company’s performance, they’ll likely vary from year to year.

Eligibility – any business owner or self-employed person. For employees, those who worked at least 1,000 hours in past year; 2 years, if no vesting period.

Contribution Limits – 25% of salary (20% of self-employment income) up to $46,000. Employees cannot contribute.

For this plan, you may need to hire a pro to set up and administer it.

4. 401k

If you’ve more than 25 employees, you might be surprised to find that a 401k isn’t as expensive to create and maintain as you might have thought. This is due to the competitiveness amongst 401k providers that leads to the cheaper pricing.

For example, some plan providers offer a 401k package for businesses with 25 employees or less that costs about $1,400 per year in annual fees, plus $28 per employee.

Eligibility- any business. For employees, those who worked at least 1,000 hours in the past year; 2 years, if no vesting period.

Is your employer offering disability retirement plans? If yes, then you’re lucky. In general, employers are not required to offer the said plan. The nice thing about disability plans is the benefits it will give to the employees who become disabled while in service. It’s really good if your employer is open about having disability retirement plans for you and your colleagues. You will never know what will happen to your physical health. There are lots of uncertainties in the workplace. What if you meet an accident while working? Your bright future will be doomed. Can you imagine yourself disabled and financially unstable? Although, service retirement plans are the common benefit plan offered to employees but it has certain requirements in order to avail the benefits.

Service retirement plan is a plan which provides employees with lifetime income. Employees should reach the age of 60 or 65 and have completed particular years of service with the company. People are very familiar with service retirement plans. The said plans are means of having a secured life after retiring as employees. The retiree can just relax and enjoy after working for how many years. However, you cannot tell what will happen until you reach the age of 60. We are not thinking here of negative situations but it’s better to be prepared in times of accidents. Disability retirement plans are just what you will need.

Unlike service retirement plan, the disability plan doesn’t have age requirement as long as the employee cannot perform his work due to injury or illness. The best thing the plan can do to you in case you’ve suffered injury is the money you’ll be receiving. After suffering from illness or injury, an employee is unable to do his task and that would mean no income. By applying for disability retirement plans, eligible employees will receive an income in his lifetime. The amount is commonly computed based on the highest salary received by a particular employee during his service with the employer.

The equivalent amount of income from the plan is up to 45% of the highest salary received. It’s not bad, right? At least, you will have an income even though you are not working anymore. In disability retirement plans, you must first be eligible in the program. An employee cannot easily apply. The said plan is intended for disabled individuals. Actually, there are two kinds of disability: short-term and long-term. In short-term disability, you will be benefited until your illness or injury heals. Bear in mind to apply right away. Sometimes, it takes weeks before your application is approved. Remember not to falsify the information required in the form.

There are cases when your application will be denied if you’ll declare falsified information. Regarding long-term disability, you will prove the extent of your disability. It must be severe so you will be entitled to long-term payments. Prove to them that you are really disabled and needs financial assistance in order to make ends meet. Disability retirement plans are a way of relief to disabled employees. It gives them hope regarding financial matters.