Retirement Plans for Small Businesses – Useful Information for Your Business

It is a fact that not since the days of the Great Depression have American workers saved so little. According to the 2005 Federal Reserve report, our economy for 2006 showed a negative savings rate of minus 0.05%; savings numbers not seen since 1932 and 1933.

The Federal Reserve Survey of Consumer Finance for the years 2001 and 2004 showed that only 41% of US households save regularly. Compare that data to 1981, when savings averaged 11% of income and credit card debt was just 4%. credit card debt is now well over 12%; an ominous statistical change in the use of disposable income.

SO WHAT CAN WE DO? If you are a smart, “savvy” employer, both you and your employees can take advantage of the IRS qualified retirement plans that have been available since the introduction of ERISA in 1974. These plans have been enhanced with the introduction of EGTRA in 2001 and the Pension Protection Act of 2006. There are now new plans and improved contribution limits that can benefit you and your employees more than you probably know.

You may not have started a retirement plan for yourself or your business because you thought it was too expensive or because you didn’t have the necessary information about the variety and benefits of what’s available. The purpose of this article will not be to list and explain all the plans available with statistics attached “ad infinitum”. Instead, I’ll show you the advantages of setting up a “painless” savings plan through IRAs, 401-Ks, SEPs, etc. that will benefit you, the employer and your employees.

HOW TO FINANCE A RETIREMENT PLAN? The “painless” and smart way to set aside funds for retirement is to deduct money from pay before FICA taxes, etc. This is called “pre-tax” contributions. Your retirement money is deposited before you can put your “gloves” on it. This reduces your taxable income and therefore your income tax for the year. traditional IRAs,

(but not ROTH IRAs), 401-K, 403-B, Keogh, SEP, and SIMPLE plans, to name a few, provide the ability to make pre-tax contributions.

HOW DO YOUR RETIREMENT PLAN FUNDS GROW? In an IRA, you can choose from any number of investments, such as stocks, bonds, annuities, or mutual funds. The return on these investments is tax-deferred (not taxed the year it is earned, but until you withdraw the funds for retirement). That means money that would have been paid in taxes that year is reinvested in your retirement account. Remember, all withdrawals made before age 59 1/2 will be taxed as income and penalized at 10% of the amount withdrawn.

WHAT ABOUT THE COSTS? SEP plans are made for small businesses. An employer can set up individual IRA-style accounts for employees to contribute at higher limits than an individual IRA at no cost to the employer. That’s right, the employer pays nothing to establish and maintain this retirement plan for its employees. A 401-K plan requires a certain amount of start-up and maintenance fees, but some providers have lower fees than the rest of the 401-K marketplace, which is a distinct advantage for the employer sponsoring this plan. This is important for businesses that already have a plan or a business that wants to start a new 401-K.

DO YOU DO ALL THIS ON YOUR OWN? You are welcome! A retirement specialist can help you and your employees by guiding you in choosing the right plan for your business. There are many considerations that require the assistance of a professional, such as investment choices, fiduciary responsibilities, educating employees regarding their participation, reviewing the progress of employees regarding the growth of their accounts, and taking advantage of new options as they become available through the Pension Protection Act. and other IRS rulings.

A good retirement professional will place you in a plan that will provide the best tax advantages for you and your business at the lowest cost, provide the opportunity to increase your retirement funds for those “golden years,” and generally maintain a relationship with you and your company that is beneficial for both.

Your employees will appreciate you helping them help themselves with this benefit. In the end, you and your employees won’t be lumped in with government statistics consisting of those who don’t save at all, but expect a more financially secure future.