Retirement and Benefit Options for Your Employees and How MCK Can Help

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Offering a retirement plan to the employees of your small business is a great way to attract and keep great talent. Retirement plans show employees that you are invested in them and their financial health but as with everything for a small business, finding the right retirement plan falls on the business owner.

There are a wide variety of plans available and the plan you choose, largely depends on the size of your business and how you structure your business. The amount of money that you can afford to put aside for the plan is also a big component.

There are several plans that work best for small business owners, and to help you make a decision, we’re going to cover them below.

1. Simplified Employee Pension Plan or SEP-IRAs have no government filings, contributions can only come from the employee, and are only for sole proprietors, partnerships or corporations. If you are using this plan, you must contribute for every employee. SEP-IRAs require very little in the way of expenses or paperwork and the maximum contributions cannot exceed the lesser of $58,000 for the 2021 tax year or 25% of the employee’s net compensation.

This plan has a lot of rules regarding contribution amounts so it’s best to get help from an MCK professional to help you navigate it. You don’t have to contribute every year to the plan so it’s a good option for sole proprietors.

2. Savings Incentive Match Plan Employees or SIMPLE IRA plans do not have the startup or operating costs associated with traditional retirement plans.Employees have a choice whether they want to contribute giving them a lot of flexibility. Employers must contribute annually but can choose to match each employee’s contributions dollar for dollar up to 3% of the employee’s compensation or they can make a 2% contribution of total compensation for each employee.

The SIMPLE IRA is a great choice for businesses under 100 employees because the calculations to participate are easier to understand.

3. Savings Incentive Match Plan for Employees or SIMPLE 401(k) is very similar to the SIMPLE IRA. It allows for loans from the plan and it’s great for small businesses with under 100 employees.The SIMPLE 401(k) plans are not subject to the non-discrimination income tests of regular 401(k) plans and employees are fully vested immediately for all contributions. Loans are allowed from this plan which is the biggest difference.

For small businesses where no one makes over $50,000 a year, the contribution limits on the SIMPLE 401(k) are high enough because they won’t be maxed out.

4. A Solo 401(k) Plan is good for the self-employed, owner-only businesses and partnerships. One-participant 401(k) plan contributions cannot exceed $58,000 in 2021 and paperwork must be filed once assets reach $250,000.It allows you to maximize your contributions even if your income is too low to get the most out of an SEP-IRA. There is limited paperwork and costs, and it’s a great way to maximize retirement savings. You should hire an administrator to ensure you are calculating all the contributions correctly and have everything set up accurately.

5. Defined Benefit Plans are fixed benefits tied to tenure and salary. There are generous contribution limits, the enrolled actuary determines the funding levels, you must file annually with the government, and the employer assumes all investment risks.

Defined benefit plans are best for high-income professionals who can easily afford set-up and administrator costs. They allow you to take a lot of money out of the business and shelter it from taxes but these plans are not DIY. You do need to hire someone to manage and monitor the plan, but if you can afford it, Defined Benefit Plans are a great option.

Choosing a retirement plan for your business can feel daunting, but the professionals at MCK can guide you through it and help you find the best fit. Set up a call or meeting with us today and learn how you can start saving for retirement and helping your employees do the same.