{"id":16431,"date":"2022-12-25T13:18:10","date_gmt":"2022-12-25T19:18:10","guid":{"rendered":"https:\/\/www.sfw.cpa\/news-and-guides\/?p=16431"},"modified":"2022-12-25T07:18:11","modified_gmt":"2022-12-25T13:18:11","slug":"choosing-a-retirement-plan-for-your-small-business","status":"publish","type":"post","link":"https:\/\/www.sfw.cpa\/news-and-guides\/choosing-a-retirement-plan-for-your-small-business\/","title":{"rendered":"Choosing a retirement plan for your small business"},"content":{"rendered":"

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Most growing small businesses reach a point where the owner looks around at the leadership team and says, \u201cIt\u2019s time. We need to offer employees a retirement\u00a0plan.\u201d<\/p>\n

Often, this happens when the company is financially stable enough to administer a retirement plan and make substantive contributions. Other times it occurs when the business grows weary of losing good job candidates because of a less-than-impressive benefits package.<\/p>\n

Whatever the reason, if you don\u2019t have a retirement plan and see one in your immediate future, you\u2019ll want to carefully select the one that will work best for your company and its employees. Here are some basics about three of the most tried-and-true\u00a0plans.<\/p>\n

1. 401(k) plans offer flexibility <\/strong><\/p>\n

Available to any employer with one or more employees, a 401(k) plan allows employees to contribute to individual accounts. Contributions to a traditional 401(k) are made pretax, reducing taxable income, but distributions are taxable.<\/p>\n

Both employees and employers can contribute. For 2023, employees can contribute up to $22,500 (up from $20,500 in 2022). Participants who are age\u00a050 or older by the end of the year can make an additional \u201ccatch-up\u201d contribution of $7,500 (up from $6,500 in 2022). Within limits, employers can deduct contributions made on behalf of eligible employees.<\/p>\n

Plans may offer employees a Roth\u00a0401(k) option, which, on some level, is the opposite of a traditional 401(k). This is because contributions don\u2019t reduce taxable income currently but distributions are tax-free.<\/p>\n

Establishing a 401(k) plan typically requires, among other steps, adopting a written plan and arranging a trust fund for plan assets. Annually, employers must file Form\u00a05500 and perform discrimination testing to ensure the plan doesn\u2019t favor highly compensated employees. With a \u201csafe harbor\u201d 401(k), however, the plan isn\u2019t subject to discrimination testing.<\/p>\n

2. Employers fully fund SEP plans <\/strong><\/p>\n

Simplified Employee Pension (SEP) plans are available to businesses of any size. Establishing one requires completing Form\u00a05305-SEP, \u201cSimplified Employee Pension\u2014Individual Retirement Accounts Contribution Agreement,\u201d but there\u2019s no annual filing requirement.<\/p>\n

SEP plans are funded entirely by employer contributions, but you can decide each year whether to contribute. Contributions immediately vest with employees. In 2023, contribution limits will be 25% of an employee\u2019s compensation or $66,000 (up from $61,000 in\u00a02022).<\/p>\n

3. SIMPLEs target small businesses <\/strong><\/p>\n

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a type of plan available only to businesses with no more than 100\u00a0employees. It\u2019s up to employees whether to contribute. Although employer contributions are required, you can choose whether to:<\/p>\n