Personal Finance Tips

You, as a business owner and employer, would have to set up and administer your own small business retirement plan for yourself and your employees.

It can be costly to set up a retirement plan but if you do some homework, you can get it cheaply coupled with a number of advantages too such as:

Employer’s contributions to a retirement plan is a tax deductible expense A sound retirement plan can attract and retain qualified and valuable personnel A tax credit of up to $500 is available to small business (normally less than 100 employees) for the cost of creating or maintaining an employee retirement plan Enhances your business’s credibility and integrity Increases your employees’ loyalty

You could go for a variety of plans such as:

1. Defined Contribution Plan

It uses an allocation formula to specify a percentage of contribution made by employees. Say, your employees can voluntarily deduct a certain portion of their salaries, in many cases before taxes, and place the money into a qualified retirement plan of your company, where it’ll grow tax-deferred.

You as an employer can also match the contribution your employees make.

2. Defined Benefit Plan

You as an employer, determine a desired level of benefits to be paid upon your employees’ retirement, using a fixed monthly payment or a percentage of compensation and then you (the employer) contribute to the plan yearly according to a formula so that the benefits are available when needed.

The amount of annual contributions is determined by an actuary, based upon the age, salary level, and years of service of your employees, plus prevailing interest and inflation rates. You’ll bear the risk of providing a specified level of benefits to your employees when they retire.

This plan loses its attractiveness attributed to the fact that nowadays employees became more mobile, and few are willing to commit their entire working lives to a single employer in order to gain a pension.

Employers, too, began moving away from this plan because of the financial pressure involved in funding them.

3. Simplified Employee Pension (SEP) Plan

This is an employer-funded retirement account that allows a small business to direct at least 3% and up to 15% of each of your employee’s annual salary, to a maximum of $30,000, into tax-deferred individual retirement accounts (IRAs) on a discretionary basis.

It’s easy to set up and inexpensive to administer, as you simply make contributions to IRA initiated by your employees. Your employees would have to make investment decisions regarding their own IRAs. That way, you avoid the risk and cost involved in accounting for employee retirement funds.

Besides, you’ve the flexibility to make large percentage contributions during good financial years and to reduce contributions during leaner times.

SEP plan applies to all types of business entities, including proprietorship, partnership and corporation. Employee’s eligibility: aged 21 or older with at least 3 years of service in your company and a minimum level of compensation.

4. Savings Incentive Match Plan For Employees (SIMPLE)

This plan comes in 2 forms: SIMPLE IRA and SIMPLE 401k.

Both provide an easy, low-cost way for a small business and its employees to contribute jointly to tax-deferred retirement accounts.

An IRA or 401k set up as a SIMPLE account requires you, the employer to match up to 3% of an employee’s annual salary, up to $6,000 per year. An employee is also allowed to contribute up to $6,000 annually to his/her own account.

If you set up a SIMPLE, you can’t offer any other type of retirement plan.

It’s best you choose the SIMPLE IRA option, as the SIMPLE 401k proves more expensive than a regular 401k due to the company matching requirements.

OK, Which Plan Is For You And Your Business?

I would say you should carefully examine your priorities when deciding on a small business retirement plan for yourself and your employees.

If your main concern is to minimize administrative cost, a SEP plan would be your best bet.

If you count upon key older employees, a defined benefit plan would help reward and retain them.

If you go for a long time horizon until retirement, you would probably do best with a defined contribution plan.

If you want your employees to fund part of their own retirement, you should go for a SIMPLE or a 401k plan.

Otherwise known as an individual retirement account, a traditional IRA is an account where you and save for your retirement. It comes with some advantages and disadvantages which you have to explore before you go start saving in this kind of retirement fund.

There are many ways to save for one’s retirement. It is very important to be well informed especially because few employers do offer retirement plans. Even in cases where it is offered corruption and mismanagement abound. It means that individuals have to be proactive in managing their retirement saving.

By choosing this retirement savings plan you make monthly or yearly contributions into an IRA account. These savings are not taxed until withdrawn. IRA contributions can be held at a bank or brokerage firm and can be invested in any choice of ventures including stocks, certificates of deposit or mutual funds. All earnings and profits will remain untaxed as long as they remain in the account.

Why Choose Traditional IRA?

The main advantage of the traditional IRA is the tax savings offered. Also the tax benefit is applied immediately in the same year of contribution. If a contributor will be at a lower tax bracket upon retirement, then the contributions will be taxed at a lower bracket upon withdrawal. This can lead to substantial savings in taxes.

Some of the disadvantages of the traditional IRA include penalties applied for early withdrawals. Contributors have to wait until the age of 70

When you look in the world of retirement planning you will see that the amount of options you have are huge. Even if you are looking for a retirement plan for your company, you have a lot of choice. One of the better options you have is “The Retirement Plan Company”. This company delivers all the kind of services you may need. Things like financial advisers, retirement services etc. etc.

Some background

“The Retirement Plan Company” was founded in 1992, because some of the clients made it clear to them that they were interested in professional people providing them with retirement plan services. At this moment they offer a large variety of services which include quality investments in diverse portfolios and record keeping on a daily basis but also the latest computer technology, internet and VRU access, to name a few.

Understanding that people want to relate their issues they also understand that they don’t to have a relationship with a computer. They also know that we live in an age full of new and advanced technologies. To bring those 2 factors together they have an online chat center on their internet site giving it that extra personal touch.

Your personal Financial Adviser

You will find a lot of good and experienced professionals at “the retirement plan company”, most of them being financial advisers. These days, the roles people have in the world changes all the time, that is why they offer a complete set of services and solutions for your finances or retirement.

Retirement planning is not a thing you should take for granted. You should be thinking about and planning for it as early as possible in you life. Only when you plan and prepare for it you will be able to relax and live a good live in all the comforts you want and need when you hit that retirement age. The last thing that you want is to just get by during those golden days. They should be the days where you do the things you always wanted to do. To make that happen you should start to plan as soon as possible.

And of course you can’t think of everything so maybe you should call upon The Retirement Plan Company. They can help you plan and calculate what you need to save now knowing what you want to do once you retire. Having experience with retirement consultancy since 1992 give them just that little extra to be able to give you good and sound advice.

In the end it is all about your retirement and you need to have a good feeling about it. A good feeling about what you can and will be doing ones you start those golden years. The people from the company will help you with all your needs knowing that you are the one who needs to be happy with the projected and result. They work for you and with you and will keep on working with you the moment you have any questions.

So now you know who you can turn to if you ever need any advice concerning your retirement planning. You can of course do it on your own or call upon someone in your direct family. If you ever want to get a second opinion why not call The Retirement Plan Company?

An individual 401(k) may be the best retirement plan option for a self-employed person with no other full-time employees other than their spouse. If those qualifications are met, the restrictive and costly 401(k) nondiscrimination rules do not apply, saving on both contribution expenses and administration fees.

The key to maximizing the benefit of an individual 401(k) plan is to couple it with a profit sharing plan. That way you’ll get the benefit of contributing your own money through the 401(k) deferrals, plus the company will add its matching and profit sharing contributions. In addition, the company can usually deduct the contribution as a business expense, saving you taxes both on the business and personal sides of the transaction.

These contribution totals can quickly add up if maximized over a period of several years. The individual 401(k) deferral limit for 2006 was $15,000 for those under 50 at the end of the calendar year and $20,000 for those age 50 or older. A corporation may also contribute 25% of total compensation for the owner and spouse. This limit is slightly less for unincorporated companies or sole proprietorships, based on the individual’s compensation amount. The 401(k) contribution does not count against the company’s profit sharing contribution and vice versa. There is a total aggregate limit, however, of 100% of total compensation or $44,000 in 2006.

There are other advantages to setting up an individual 401(k) and profit sharing plan. The contribution amount is discretionary, not fixed, allowing you to reduce contributions during lean times. Loans and hardship withdrawals are also allowed under most 401(k) plans. Rollovers from other retirement accounts (IRAs, employer-sponsored plans) can usually be transferred into the 401(k), making recordkeeping and investing easier by consolidating everything in one account.

Despite these benefits, there can be some disadvantages to setting up an individual 401(k) plan. It can become significantly more expensive if you ever hire any full-time employees in the future. You would then be required to contribute on their behalf, as determined by the 401(k) non-discrimination rules. Be sure you will not need additional full-time help as your business grows before committing to an individual 401(k) plan.

There is also a significant amount of paperwork involved with setting up a 401(k) or any type of retirement plan. Most companies simply pay an administration fee to a third-party pension firm or financial institution to handle the administration and tax filings for them. The fees for an individual 401(k) plan are usually only a couple hundred dollars since the owner and possibly a spouse are the only participants.

If you are a small business owner who does not plan to have any full-time employees, you should strongly consider setting up an individual 401(k) plan. Adding a profit sharing plan can boost the amount of your maximum contribution each year and will let you build up your retirement savings very quickly. The contributions are tax-deductible to your business and tax-deferred on the individual side, giving a double tax benefit to business owners who save for retirement with a 401(k) plan.

Buying Employee Retirement Plans for Small Businesses has two advantages, tax-advantage for the owner as well as being much appreciated benefit to the employees. There are several plans to choose from and the owner has to seek expert guidance to select the best-suited plan or combination of plans. They have to analyze which plan best suits the business and the employees, the highest amount of annual investment required, its administrative costs and intricacy and the tax benefit got by opting for any specific plan.

Types of Plans to Consider While Buying Employee Retirement Plans for Small Businesses:
Profit-Sharing Plans: This is one of the most popular plans, which allows the employer to make contributions that are distributed to those who participate in the plan. A formula is set to work out how much each employee participating in the plan will receive and employer’s total deductible contributions may not exceed 25% of the total compensation of all employees participating in the plan.

Defined Benefit Plans: A formula is worked out to determine how much an employee will receive annually after retirement, if he works until the retirement age. An estimate is worked out to determine how much the employer has to pay each year to fund the plan taking into account the number of employees. This type of a plan offers the highest retirement benefits as well as offers the employer the largest contribution deduction.

401(K) Plans: This plan is fast gaining popularity and is a kind of deferred compensation plan. The employees set aside a portion of their salary to be used for this plan voluntarily. This kind of a plan is best suited for employers who want to opt for an inexpensive but effective plan. Usually this plan is incorporated into being a part of a profit sharing plan.

Money Purchase Pension Plans: This plan is like the profit sharing plan but has one difference; the employer has to make regular, annual contributions. This plan is inexpensive but not very popular because of the compulsory annual contributions.

Savings Incentive Match Plan for Employees IRA Plan: The employees can defer $10,000 from the annual contribution and can contribute it to the IRA. The employers have to match deferrals up to 3 % of the employee’s wages. The money contributed by the employer is immediately vested, this plan cannot be clubbed with any other plan, and compensation the owner gets is low and employers with more than 100 employees cannot use it. Therefore, it is not very popular.

Select an appropriate plan after analyzing all the plans; they can be powerful motivating tools as well as employee morale boosters. Buying Employee Retirement Plans for Small Businesses has to be done carefully under the guidance of qualified people such as CPA.
There are firms that offer services as well as products to aid in running a successful business.