Retirement Plans for Your Business: Which One is Right for You?
As a business owner, you want to attract and retain top talent, provide financial security for your employees' futures, while also considering savings tools for your own income. Offering a retirement plan is an excellent way to achieve these goals. However, with so many different types of retirement plans available, it can be challenging to know which one is the right fit for your company. In this blog post, we'll explore the different types of retirement plans available and their features and benefits to help you make an informed decision.
SEP IRAs
SEP (Simplified Employee Pension) IRA is a retirement plan designed for small business owners and self-employed individuals. The contributions are made entirely by the employer, and the contributions are tax-deductible for the employer. Employees are not allowed to make contributions. SEP IRAs have higher contribution limits than traditional IRAs but may be limited by the employee’s compensation (maximum 25% of compensation may be contributed up to a total of $66,000 for 2023). SEP IRA's are eligible for SECURE 2.0 expanded Start-Up Credits.
SIMPLE IRAs
SIMPLE (Savings Incentive Match Plan for Employees) IRA is a retirement plan designed for businesses with 100 or fewer employees. Both employers and employees can make contributions, and employers are required to make contributions either through matching contributions or non-elective contributions. SIMPLE IRAs have lower contribution limits than 401(k) plans ($15,500 in 2023), but they have lower administrative costs and are easy to set up and maintain. It's important to note that SIMPLE IRA plans have a two-year holding period, meaning that funds must be held in the plan for two years before they can be withdrawn without penalty. SIMPLE IRA's are eligible for SECURE 2.0 expanded Start-Up Credits.
401(k) Plans
Solo or Individual 401(k) Plans are designed for self-employed individuals or small business owners who do not have any full-time employees (other than a spouse). These plans allow for higher contribution limits that align with Traditional 401(k) Plans than other small business retirement plans. Solo 401(k) Plans may offer both pre-tax and Roth contributions, and also allow individuals to contribute as both an employee and employer. Like other retirement plans, contributions made by the employer are tax-deductible, and the contributions made by the employee can grow until they withdraw the funds in retirement.
Traditional 401(k) plans are the most common type of retirement plan offered by businesses. They allow employees to contribute a portion of their income, either pre-tax or Roth, which can grow until they withdraw the funds in retirement. Employers may also choose to match employee contributions up to a certain percentage or provide a contribution untethered to the match; either decision making it an attractive benefit for employees. 401(k) plans have a high contribution limit, do not require an employer contribution, and are highly customizable, making them an excellent option for companies of all sizes. Traditional 401(k) Plans can cost more to establish and administer than some of the other options, but there are cost-sharing possibilities. Traditional 401(k) Plans are eligible for SECURE 2.0 expanded Start-Up Credits.
403(b) Plans
403(b) plans are similar to 401(k) plans, but they are designed for employees of non-profit organizations and public schools. Like 401(k) plans, employees can contribute a portion of their income, pre-tax or Roth, and employers may choose to match contributions but are not required. Similarly to the Traditional 401(k) Plans, 403(b)'s also have high contribution limits and are highly customizable, making them an excellent option for non-profit organizations and public schools of all sizes.
Non-Qualified Employee Benefit Plans
Non-qualified employee benefit plans are retirement plans that do not meet the requirements for tax-deferred status under the Internal Revenue Code. Non-qualified Employee Plans often complement a 401(k) or 403(b) Plan. These plans are typically offered to high-level executives and provide additional benefits that are not available under qualified plans, such as higher contribution limits and flexible investment options.
There are several different types of retirement plans available to businesses, each with its own features and benefits. 401(k) and 403(b) plans are popular options for companies of all sizes, while non-qualified employee benefit plans provide additional benefits for high-level executives. To determine which plan is the right fit for your company, it's essential to work with a trusted financial advisor who can help you navigate the options and make an informed decision. If you're looking for a Retirement Plan Advisor to help you start or manage your retirement plan, email us today, Christina.Tunison@lpl.com.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.
#430561 Apr2023