Small business owners handle practically every aspect of their day-to-day business. And just as every business has its own unique staff it also has unique retirement benefits needs. There are several types of retirement plans to choose from and without expert help, they can be confusing. There are pros and cons to each plan and it is important to choose the one that best suits your needs.
 

SIMPLE IRA
Simple IRA’s are ideal for companies with 100 employees or less. They work much like a 401(k) plan, but with little to no expense for the employer. Employees can defer up to $12,500 or $15,500 if over age 50. Employer can match up to 3% or make unmatched contributions.

SEP IRA
SEP IRA’s are used primarily for self-employed business owners. All contributions come from the company and are usually tax deductible. Employers can contribute up to 25% of their income, or $55,000, whichever is less. If there are other eligible employees, the employer is required to contribute the same percentage of income for all. There is no cost to set up and SEP IRA’s are easier to establish than solo 401(k)s..

Solo 401(k)
With a Solo 401(k), a sole proprietor can set up and make contributions as both the employer and employee. Contribution limits are $55,000 per year or $61,000 for those over 50 and Solo 401(k)s cover a business owner and his or her spouse, but not employees.

401(k) Plan
The most widely known of retirement plans, 401(k)s allow for maximum flexibility and contributions, but they cost money to operate. To offer a 401(k), a Third Party Administrator (TPA) is typically needed. 401(k) plans allow for ROTH contributions, and employee elective deferrals are allowable up to $18,500 or $24,500 for those over 50. Total contribution limits (with employer match) are $55,000 or $61,000 for those over age 50.

Profit Sharing Plan
Profit sharing plans allow for discretionary employer contributions without restrictions. Employers can choose how much to contribute (or not at all) each year. There are formulas that need to be set and followed – this is typically done by a TPA firm (Third Party Administrator). This feature can be added to a 401(k) plan to allow for salary deferral. Contributions are limited to the lesser of 25% of compensation or $55,000

IRAs or ROTH IRAs
Individual Retirement Arrangements (IRA)s can be established by anyone with taxable compensation (or spouse with taxable compensation) and aren’t age 70.5 by the end of the year. Contributions are limited to $5,500 or $6,500 if age 50 or older. Traditional IRAs can provide a tax deduction, whereas ROTHs do not. ROTH IRAs are not taxed once withdrawn after age 59.5, where as most IRA assets are taxed as income once withdrawn.

Type of PlanWho is it For?Contributions*
Simple IRACompanies with 100 employees or lessEmployees can defer up to $12,500 or $15,500 if over age 50. Employer can match up to 3% or make unmatched contributions.
SEP IRASelf-Employed Business OwnersEmployers can contribute up to* 25% of their income, or $55,000, whichever is less. If there are other eligible employees, the employer is required to contribute the same percentage of income for all.
Solo 401(k)Sole proprietorContribution limits are $55,000 per year or $61,000 for those over 50 and Solo 401(k)s cover a business owner and his or her spouse, but not employees.
401(k)Businesses of any sizeEmployee elective deferrals are allowable up to $18,500 or $24,500 for those over 50. Total contribution limits (with employer match) are $55,000 or $61,000 for those over age 50.
Profit SharingBusinesses of any sizeEmployer contributes
IRAAnyone with taxable compensation (or spouse with taxable compensation) and aren’t age 70.5 by the end of the year is eligible.Employee / individual contribution

Let Meridian work with you to determine what plans are right for your business.

*Please note, all above mentioned contribution limits as of 2018.