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. Meridian Financial Partners is a small business; we understand. Meridian works with small business owners to assist them with establishing a plan that works for them and their business. 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.
Let Meridian work with you to determine what plans are right for your business.
Common Business Retirement Plans
Simple IRA’s are employer-sponsored plans 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. Employers can match up employee contributions or make unmatched contributions.
SEP IRA’s is a traditional IRA for self-employed business owners. Any business owner with one or more employee or freelance income can set one up. There is no cost to set up and SEP IRA’s are easier to establish than solo 401(k)s.
With a Solo 401(k), a sole proprietor can set up and make contributions as both the employer and employee. Solo 401(k)s cover a business owner and his or her spouse, but not employees.
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.
Profit Sharing Plan
Profit sharing plans allow for discretionary employer contributions without restrictions. 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.
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. 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 ROTH IRAs are not taxed once withdrawn after age 59.5, where as most IRA assets are taxed as income once withdrawn.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 Plan||Who is it For?||Contributions*|
|Simple IRA||Companies with 100 employees or less||Employees can defer up to $13,000 or $16,000 if over age 50. Employer can match up to 3% or make unmatched contributions.|
|SEP IRA||Self-Employed Business Owners||Employers can contribute up to* 25% of their income, or $56,000, 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 proprietor||Contribution limits are $56,000 per year or $62,000 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 size||Employee elective deferrals are allowable up to $19,000 or $25,000 for those over 50. Total contribution limits (with employer match) are $56,000 or $62,000 for those over age 50.|
|Profit Sharing||Businesses of any size||Employer contribution|
|IRA||Anyone 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. $6,000 per year. Individuals age 50 and older can contribute $7,000.|
|ROTH IRA||Anyone 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. $6,000 per year and individuals age 50 and older can contribute $7,000.|
*Please note, all above mentioned contribution limits as of 2019.