As a business owner, establishing a retirement plan at your company can serve many purposes. Having a plan will provide your employees an opportunity to reduce their taxes and save for retirement. It can be an important tool in retention of existing employees as well as attracting new employees.
It also has quantifiable benefits for the business and the business owner. In particular, salary deferrals can be shielded from tax and employer contributions can be utilized as expenses for the business. A business with a small number of employees can take particular advantage of these breaks and often has a wider array of feasible plans to choose from. The establishment of a retirement plan has become particularly attractive given the reduction in deductible items for many high-earners brought about by the most recent tax legislation.
Plans range from the SIMPLE IRA, which allows $12,500 annually to be deferred from tax ($15,500 those over 50), a 3% match, and requires very little cost to set up and maintain. A Defined Benefit Plan will allow for $220,000 to be deferred from tax, but requires significant costs to set up and maintain. The most common plan, a 401k plan allows for $18,500 in deferrals ($24,500 for those over 50) and can include a profit sharing contribution which can bring total contributions up to $55,000. There are a number of other plans that’s should be considered as well, which are outlined in the attached article.
Establishing and maintaining the plan are equally important. Both are important steps and require extensive care and due diligence. In most cases, the business owner serves as a fiduciary to the plan and has the responsibility to ensure that the plan has reasonable costs and prudent investments. ERISA law provides the framework under which plans must be designed and maintained. It is complex and requires expert advice to ensure compliance. He or she must take time to review the plan periodically to ensure that it remains as competitive as when it was established.
Hiring an advisor to help navigate the set up and maintenance process can prove invaluable. DHG Wealth Advisors provides these services to hundreds of employers nationwide. Being part of an accounting firm that works primarily with business owners provides us particular expertise in this area.