At Lawhorn CPA Group we work as a member of a team of professionals qualified in their respective fields on behalf of our clients. Whether you need additional assistance with tax attorneys, certified financial planners, or accountants, we seek to provide encompassing assistance to the owners of businesses in our community. With this in mind, we recognize that deciding on retirement plans is an enormous decision for business owners. Making the matter more complicated is the sheer volume of options from which to choose when deciding which retirement plan is right for you. As a business owner, making so many important decisions can cause information overload or decision deadlock. To release some of the pressure, let’s look at your options as a business owner and see which retirement plan could fit best with your organization based on the numerous variables involved.
Research on Retirement Plans
Sifting through the multitude of information out there regarding retirement plans is a full-time job in and of itself. Notwithstanding, this information can be misleading and even compel you to select one that turns out to be a bad match for you and your business. When you start researching the best retirement plan options for your business, one of the first things to consider is your business size. Retirement plan options vary for businesses with one employee, 2-50 employees, or those who exceed 50 employees.
Best Retirement Plans for No Employee Businesses
If you are a business owner with no employees, primary concerns will lie with your benefit and the benefit to your family. Choosing a retirement plan is the simplest when you are a business owner with no employees, as you only have to consider yourself. But not all retirement plans are created equal and therefore should be approached with due diligence. For one person starting out in business, the easiest retirement plan to meet your goals is a SEP IRA (Simplified Employee Pension Independent Retirement Account). This small business retirement plan offers far less paperwork than typical retirement plans, saving you time from the start. In fact, the IRS provides SEP IRA forms, already pre-printed. A business owner can contribute more into a SEP IRA versus your traditional IRA, and a SEP IRA is an excellent retirement plan for business owners that want to contribute up to 25% of their income and receive tax breaks. You can also control how much you contribute at any point in time, which allows you to contribute in conjunction with the ebbs and flows of your business’s cash flow. Alternatively, if you are looking to contribute in excess of 25%, you may want to consider a One Person 401(k), which allows you to make additional contributions past 25% and even more if you are over the age of 60.
Retirement Plans: Up to 50 Employees
The primary focus of a business owner with 50 or fewer employees is still with you and your family, but you must also think of your employees. As a business owner of this size, you must consider administrative fees and costs, as well as other considerations such as service/plan operation, investment performance, and fiduciary compliance. Luckily, laws governing retirement plans have expanded over the past 20 years to both evolve and expand your options as a small business with a modest number of employees.
For starters, businesses of this size should look at the details of a SIMPLE IRA, which operates like a SEP IRA and allows for “saving incentive match plans” for employees. The main difference between a SEP and SIMPLE IRA is the contribution limit. As of 2018, employees can contribute $12,500 to a SIMPLE IRA with a $3,000 salary deferral catch-up contribution. For employers, contributions are equal to 3% of your net earnings/business profits with one-half of your self-employment tax deducted.
Retirement Plans for Over 50 Employees
When your business has over 50 employees, the game changes somewhat. You must now focus on executive and management benefits to keep intelligent, capable leaders of your business content and prosperous, and take into account management’s concerns with your retirement plan’s obligations. Questions that typically arise for business owners of this size when considering retirement plans are “how are employees educated about their retirement benefits?” and “does our retirement plan provide effective benefits to its employees?”
Business owners with over 50 employees should certainly investigate 401(k) plans, in addition to defined benefit pensions and cash balance defined benefit plans. Among the different 401(k) plans, perhaps the most popular goes to Safe Harbor 401(k) plans, which allows business owners to contribute the maximum annual deferred amount while receiving additional company matching contributions. Safe Harbor 401(k) plans are an exceptional option for business owners to max out contributions to their own retirement savings while reducing several IRS limitations.
Tax Help for Retirement Plans
A retirement plan isn’t just a way to safeguard your own personal future but is an almost essential way of attracting the best possible talent to your organization. It is an important, long-term planning-oriented issue when considering America’s aging work population and the subsequent talent shortage emanating from it. While the spirit of brevity prevents us from comparing every single type of retirement plan, contact your accountant at Lawhorn CPA Group to help you consider which retirement plan is best suited for you, your family, your business, and your employees. Our team of qualified professionals are available at Lawhorn CPA Group, to go beyond filing your yearly tax return. Call us today to set up a time to speak with one of our Knoxville, TN team members about financial planning and business solutions that can help you reach your financial and retirement goals. Contact us by phone at 865-212-4867 or online HERE.