Retirement Plans for Small Businesses and the Self-Employed
Retirement Planning Void Just 28% of companies with 10 or fewer employees offer any type of retirement plan 51% of companies with 10 to 24 workers offer a plan 63% of companies with 25 to 49 workers offer a plan 73% of companies with 50 to 99 workers offer a plan Source: Social Security, Office of Retirement and Disability Policy, Retirement Plan Coverage by Firm Size: An Update, May 2015.
Why Consider a Retirement Plan? Because It Helps You Save more for yourself, tax deferred Attract and retain employees Help your employees plan for their futures
Today We ll Discuss Why you and your employees need to plan and save for retirement today The benefits of retirement plans for you and your business The different types of retirement plans available Why you should act now Guidelines to help you decide on a plan
Why Plan and Save? Can you depend on Social Security in retirement?
The Three-Legged Stool Social Security Personal investments Retirement plans
Retirement Plans Are Key to Retirement Saving Success For both you and your employees.
Which Is the Best Retirement Plan for You and Your Business? SEP-IRA (Simplified Employee Pension) IRA SIMPLE (Savings Incentive Match Plan for Employees) IRA Profit Sharing Plan 401(k)
SEP-IRA Easy to set up and administer No annual reporting requirements Must include most employees Contributions made by employer only
SEP-IRA Flexible contributions In 2017, contributions of up to 25% of compensation or $54,000, whichever is less Must begin distributions after age 70 1 /2
SEP-IRA This is how much you can contribute per year to a SEP for yourself and your employees: Net Salary $200,000 $75,000 $30,000 $15,000 Maximum Contribution (the lesser of 25% or $54,000) $50,000 $18,750 $7,500 $3,750 This is a hypothetical example and is not representative of any specific situation. Your results will vary.
SIMPLE IRA A SIMPLE IRA may be appropriate for businesses that: Have 100 or fewer employees who earned at least $5,000 in the prior year Want a plan funded by employee contributions, but prefer a less complex plan than a 401(k) Want minimal administration and flexible contributions Do not have another retirement plan
SIMPLE IRA Matching Plan Employee earning $20,000/year They Contribute $12,500 $1,000 $300 $0 You Match 3% of Salary $600 $600 $300 $0 This is a hypothetical example and is not representative of any specific situation. Your results will vary.
SIMPLE IRA Nonelective Contributions Employee s Annual Compensation $270,000 $75,000 $50,000 $20,000 Your Contribution $5,400 $1,500 $1,000 $400 This is a hypothetical example and is not representative of any specific situation. Your results will vary.
SIMPLE IRA Basic Requirements Open to employees who have two years of service prior to the current plan year, who are expected to earn at least $5,000 in the current plan year, and who earned at least $5,000 during any two preceding calendar years Available only to businesses with 100 or fewer employees Employer can set less restrictive eligibility rules, but not more restrictive rules
Profit Sharing Plan Contributions are discretionary Flexible contribution percentages may vary from year to year Ideal for companies with fluctuating profits More administratively complex than some other plans
401(k) Plan The Individual 401(k) for sole proprietors uses the same rules and limits as other 401(k)s Traditional 401(k)s or the Roth 401(k) are generally more appropriate for companies with at least 30 employees Allow employee contributions Don t require employer contributions Flexible and offer many design features
401(k) Plan Sample Contributions They contribute 10%, up to $18,000 4.5% Company Match Total $20,000/yr. Employee $2,000 $900 $2,900 $40,000/yr. Employee $4,000 $1,800 $5,800 $70,000/yr. Business Owner $7,000 $3,150 $10,150 $200,000/yr. Business Owner $18,000 $9,000 $27,000 This is a hypothetical example and is not representative of any specific situation. Your results will vary.
401(k) Plan Rules Help Small Businesses Highlights of the Pension Protection Act of 2006 Simplified filing requirements Automatic 401(k) enrollment Higher contribution deductions
Compare the Plans SEP-IRA SIMPLE IRA Profit Sharing Plan 401(k)
Tangible Factors Tax deduction Maximum individual contribution limit Flexibility Number of employees Make benefit available to all employees Other factors
Intangible Factors Ability to attract and retain employees Economic conditions Desire to provide employees with retirement assets
Your Top Reasons for Not Starting a Retirement Plan 1. It s too expensive 2. It s too time consuming 3. I have too many other business issues to think about 4. The future can wait 5. I can t afford to contribute
Why Save Now? Goal: $500,000 by age 65 The later you begin, the more you ll need to invest Age 25 35 45 55 Monthly Investment* $142 $333 $843 $2,175 *Assumes an 8% rate of return, compounded monthly, in a tax-deferred retirement account. Withdrawals will be taxed at then-current rates. Early withdrawals may be subject to an additional federal tax. This example is hypothetical and is not intended to represent the past or future performance of any specific investment. There is no guarantee that such a return will be achieved. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Plan for Your Own Retirement and Your Employees Today