Small Business Retirement Options

The Trump Administration recently announced new rules so small businesses can work together to establish employee retirement plans. Sounds like a nice plan, but small businesses don’t need to wait for new rules for to save for retirement and reduce taxes.

What?! That’s right! Existing tax rules provide several retirement plan options for small businesses. Some of the plans are easy to set up and inexpensive to manage. Your existing bank, mutual fund service representative, or financial advisor can help you get started.

Three types of retirement plans that small businesses should consider:

  • SEP IRA (Simplified Employee Pension Individual Retirement Arrangement)

A business of any size, even self-employed individuals with no employees, can establish a SEP. A SEP IRA has no set-up or operating costs and does not require any annual filing. The employer (or self-employed person) contributes up to 25 percent of each employee’s pay to a separate SEP-IRA account established for each eligible worker. Participant loans are not allowed. The 2018 contribution limit is $55,000.

  • SIMPLE IRA (Savings Incentive Match PLan for Employees)

A SIMPLE IRA is also easy to set-up, has no start-up or operating costs, and no annual filing requirement. Any small business can set one up, but the employer cannot have any other retirement plan. The employee contribution limit is $12,500 in 2018. The employer is required to make annual contributions of 3% compensation match or 2% non-elective contribution for each eligible employee/self-employed person.

  • 401(k) Plan

Businesses other the self-employed (e.g., Sub S or partnership) can set up a 401(k) qualified profit-sharing plan, named for the Internal Revenue Code section. A 401(k) allows employees to contribute a percentage of wages to individual accounts using elective deductions from their paychecks/taxable income. Employers can also contribute. Administrative costs for a 401(k) are fairly significant due to the plan’s complexity.

Saving for retirement and lowering your tax bill at the same time knocks two important items from your “To Do” List. No need to wait for the White House and Congress to act. You can get started now.

These are only three of the many available retirement plan options, based on your business type. Want to know more? Check out “Help with Choosing a Retirement Plan” on the IRS website at