Small Business Owners – Don’t Forget about a Retirement Plan

Retirement Plans

Not enough hours in the day or is your to do list already two pages long? I have heard them all before… selecting a plan is too complicated, completing the paperwork is a daunting task, and then you still need to select the investments. Oh, and let’s not forget about the day to day operations of the business.

No doubt about it, small business owners have a lot of their plate. The numbers from the Small Business Administration (SBA) support that story line.

  • About 50% of Americans work for small businesses
  • Only 31% of small businesses provide retirement plans
  • Roughly 77 million Americans don’t have employer sponsored retirement plans

Your retirement is too important to put this off another day. Let’s take on the first obstacle, selecting a plan. There are several options for small businesses: IRA, Simple IRA, SEP IRA, 401k’s, and Keogh Plans. Each has specific pros and cons. Let’s looking into the SEP IRA.

Small Business Retirement Plans

What does an SEP mean?
Answer: Simplified Employee Pension Plan provides small business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings.

Who can establish an SEP IRA?
Answer: Available to sole proprietors, partnerships, C corporations, and S corporations.

What are the key characteristics?
 Answer: Easy to set up and operate, low administrative costs, flexible annual contributions, employer must contribute equally for all eligible employees, and no filing requirement for the employer.

What are the annual contribution limits?
Answer: 25% of compensation, or $53,000 (for 2015 and 2016 and subject to annual cost-of-living adjustments for later years). Please note, if you are self-employed, base your contribution on net profit – minus one-half of the self-employment tax – minus your SEP contribution, see IRS Publication 560 for more details.

Is there a deadline to establish an SEP IRA?
Answer: Yes, it is by the employer’s tax filing deadline, including extensions.

Bottom line: an SEP IRA is an ideal plan for a sole proprietor with consistent profits, who is looking to maximize their contributions, and wants minimal administration. Additionally, the SEP IRA is an attractive option for a small business with less than 30 employees who is looking for the flexibility of a discretionary contribution to all eligible employees.

Others retirement plans to consider would be SIMPLE IRA, 401k, or a Keogh Plan. If you need assistance, please contact me for retirement plan consulting.

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