Small Business Retirement Plans for the End of Year

Income and Investments

Small business owners often manage their own human resources, which includes figuring out what to do about retirement savings plans. Faced with an array of complex, and sometimes expensive, savings plan choices, it’s tempting to not offer a program. But, as an employer, you have an important role in assisting your workers to save for retirement. With the end of the year coming soon, now is a good time for small business owners to look at options and choose a retirement savings plan that will defer some taxes, while helping both you and your employees prepare for a confident future.

The good news is starting a retirement savings plan can be easier than most business owners might think – and it’s one way to attract and keep good employees. Having employees who say they are happy with their jobs contributed to higher profits, as much as 22.2%, according to data from the Fortune 100 Best Companies to Work For survey.

The U.S. Department of Labor offers a guide that lays out various retirement savings programs.

Here are some options that you as a small business owner or a self-employed individual can look at which may be a win for you  – and if you have them – a win for your employees:

A Simplified Employee Pension Plan (SEP IRA), Savings Incentive Match Plan for Employees (SIMPLE IRA)

SEP IRAs are for self-employed, sole proprietors, partnerships or corporations (including S) with any number of employees. Contributions are made only by the employer and are tax deductible as a business expense. Employers who contribute to their own accounts must provide the same percentage to employees. Contributions can be halted during a lean year. There are no significant administration costs for a self-employed person with no employees.  For 2016, business owners can contribute up to 25% of income or $53,000 to their SEP IRA.

Simple IRAs are for those with 100 or fewer employees. They are funded from contributions from the employer (tax deductible) and from employees (pretax). A SEP IRA and Simple IRA accounts are traditional IRAs and follow the same investment, distribution, and rollover rules as traditional IRAs.

Self-Employed 401(k), or Solo 401(k), and 401(k) plans

The self-employed or solo 401(k) is a tax-deferred plan for sole proprietors, partnerships or corporations (including S) with generous contribution limits. However, it is suitable only for businesses with no “common law” employees, or anyone working for the company who does not have an ownership interest.

The 401(k) plan is usually better for larger companies, given the high setup costs.  However, a Safe Harbor 401(k) plan offers several advantages, including allowing business owners to contribute the maximum to their own accounts.

The Return of the Pension Plan: One of the most overlooked plans is the defined benefit pension plan. While large companies have been deserting such plans in favor of 401(k) or similar programs, offering a traditional pension can make sense for successful small business owners and entrepreneurs.

The advantages of traditional pension plans? They often offer more flexibility, higher contribution limits and greater tax deferments. Their assets can’t be seized in lawsuits or by creditors. And employees love them!  Offering a pension plan, which guarantees a retiree a set amount of income for life, no matter what the stock market does or how the economy performs, is a great way to attract and retain workers.

The downside? Annual administration fees are sometimes quite high; a plan actuary must calculate employee funding levels annually, another costly feature. And an enrolled actuary is required to help determine funding levels needed to create the defined benefit and to file a Form 5500 with a Schedule B annually. A pension also may not be the best option for a business that needs a high level of liquidity.  But a defined benefit pension plan can be just the ticket for high-net-worth business owners and successful entrepreneurs aiming to protect themselves and their businesses while maximizing tax-advantaged retirement savings.

Whatever you choose, be sure to max out on your own contributions. Just as employees deserve a proper retirement, you do too! Remember now to look ahead to 2017. It’s going to be tight, but you can start these plans this year and potentially benefit immediately on your taxes!

If you are self-employed TurboTax has you covered.  TurboTax will ask you simple questions about you and your business and give you the tax deductions you are eligible for based on your answers.

Winnie Sun is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Sun Group Wealth Partners, a registered investment advisor and a separate entity from LPL Financial.

 This information is not intended to be a substitute for specific individualized tax or legal advice. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual

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