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Starting a small business retirement plan can be a highly rewarding experience for you and your staff, but which is the right plan type for you and your company? Do you need tax savings and are willing to put money in for your employees as a trade off? Or are your goals more focused on retaining employees or offering benefits similar to your competitors, so is a more economical approach a better fit? Just as unique as your business is, so are the options, but highlighted below are some of the most common small business retirement plans.
Popular Small Business Retirement Plan Types
SIMPLE IRAs-These plans allow you and your employees to defer up to $12,500 in Roth or Pre-Tax Deferrals. Due to the simple nature of these plans, though, there are not a lot of options. Employers are required to either offer a 3% match to employees who participate or 2% to all eligible employees with those contributions 100% vested to employees right away. Also, anyone who has made more than $5,000 in either of the prior two years or is reasonably expected to in the current year is eligible to enroll. Due to the rigid nature, this may not be the ideal plan type for high turn-over industries or if you are looking to encourage retention through the plan. Fees are usually only asset-based, deducted from employees’ accounts, and there are no annual government filing requirements. Once all provider and investment fees are included, your expenses should be under 2%, with ours ranging from 1.15-1.55%.
Safe Harbor 401(k) Plans- These plans are a step up from SIMPLE IRAs with higher deferral amounts and more options. You can defer up to $18,500 in Pre-Tax or Roth deferrals, and the required employer contributions are either 4% match to those that enroll or 3% to all eligible employees with the contributions being fully vested again. Eligibility and other options make this a popular first plan for small business owners though. You can require employees to work for your company at least one year and work 1,000 hours, then offer entry into the plan twice a year. This allows you to keep full-time employees out of the plan for 12-18 months or part-time employees out of the plan entirely. Other options include additional contribution types, which can be vested over 6 years like profit sharing, offering loans and other distributions with some other creative options. Trade-offs include required government filings which increases costs some, but when done right you can generally keep your company’s out of pocket costs to ~$1,000 with employees paying a small monthly fee of $2-$3. Asset-based fees should again be under 2% in most cases, with ours starting as low as 1.15% with all provider and investment fees included.