Best retirement plans for small businesses


Wed., May 23, 2012 11:25pm EDT (Reuters) — Small business owners want to choose a retirement plan that will be fair to their employees and give the right amount of tax benefits, but at the same time won’t drain company liquidity. Here are some financially sound retirement plan options for small employers.

Savings Incentive Match Plan for Employees (SIMPLE) IRA

SIMPLE IRAs don't allow employees to contribute as much as traditional 401(k) plans (in 2011 it was $5,000 less). But they require employers to match contributions. This is great for owners who want their workers to feel secure, but not break the bank. A downside for employees is that the catch-up contribution for those over age 50 is less than traditional 401(k)s. Also, plan holders cannot borrow out money and there are no tax-free Roth-like options.

Traditional 401(k) or solo 401(k)

Traditional and solo (401)k plans offer a lot of versatility. Employers are given the option to match contributions and can give employees access to loans. They offer catch-up investment options for those over 50 and have Roth options that tax contributions up front instead of at withdrawal. Solo 401(k) plans allow for even higher contributions over traditional 401(k)s. The catch is only owners with very few or no employees qualify for it.

Simplified Employee Pension Plan (SEP) IRA

This plan doesn't allow for employee contributions, instead employers make all the investments. There are also no loan, catch-up, profit sharing, or Roth options. But on the plus side, SEP IRAs have more relaxed tax reporting requirements. Small business owners should also note that there are variations within the retirement plans stated above. If you need more help in choosing which is best for you, don't be shy about asking for help.

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