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Have a client starting a small business retirement plan?
That’s a great idea.

A retirement program can help your client and their employees.

Reap the benefits

Your client may be able to get tax deductions for starting and contributing to a qualified retirement plan. If they have never had a 401(k) or 403(b) plan, there’s a tax credit for starting one.
 

Save on expenses, too. Businesses that set up a 401(k) plan for the first time and meet certain criteria can receive up to a maximum of $500 in credits annually for the first three years (can include costs in the year leading up to the effective date).
 

They're not required to make an employer or "matching" contribution. But if they do contribute, the amount is tax deductible, up to a certain limit.

 

Recruit and reward

Giving employees benefits is a great way to make sure they’re happy, loyal to the organization and ready to help the business succeed.
 

Pay is one thing, but retirement benefits are another (hint: they want both)

  • Four in ten workers say they'd choose a retirement plan over a higher salary.2


Retire

It’s a win-win! A retirement program helps your client’s employees save for retirement and your client save for their own retirement. And employees retiring on time can help your client’s bottom line.


For each employee over the age of 65, employers could be paying more than $5,650 per year for health care.3

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Types of retirement plans

If your client has decided to start a retirement plan, the next step is to determine the plan type.
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  • DC Plans
  • SEP IRA
  • SIMPLE IRA

Defined contribution: 401(k) and 403(b)

  • Popular for businesses.
  • Easier for employees to understand than other plan types.
  • Recognized, so employees may be more comfortable.
     

Typical employer:

  • All businesses (except governmental agencies).


Advantages for employer:

  • Federally tax-deductible company contributions (generally).
  • Tax credit for first-time retirement plan sponsors.
  • Options to offset administrative costs.
  • Flexible plan design.
     

Considerations:

  • The employer is not required to contribute.
  • Employees can defer up to $18,500 ($24,500 if over age 50) or 100 percent of compensation.4
  • Allows Roth (after-tax) contributions, a vesting schedule and loans.

SEP IRA

  • Generally for very small businesses and the self-employed.
  • Establishes an individual retirement account (IRA) for each eligible employee.
  • Completely funded by employer contributions.
     

Typical employer:

  • Businesses with 10 or fewer employees.
     

Advantages for employer:

  • Federally tax-deductible company contributions (generally).
  • Easy administration. No requirement on frequency or amount of contributions.
  • No employer administration fee.
  • Minimal paperwork.
     

Considerations:

  • The employer can contribute up to 25 percent of compensation or $55,000, whichever is less.4
  • Does not allow Roth (after-tax) contributions, a vesting schedule or loans.
  • May establish up until the extended due date of the employer’s tax return.
  • May require the employer to cover employees who would be excludable under standard 401(k) plan provisions.

SIMPLE IRA

  • Requires employer contributions.
  • Must be the only qualified plan employer maintains within the calendar year.
     

Typical employer:

  • Businesses with up to 100 employees (including self-employed).
     

Advantages for employer:

  • Federally tax-deductible company contributions (generally).
  • Easy administration. No compliance testing or annual Form 5500.
  • No employer administration fee.
  • Minimal paperwork.
     

Considerations:

  • The employer can contribute either by matching up to 3 percent of each eligible employee’s salary or contributing 2 percent of all eligible employees’ salaries, regardless of participation.
  • Employees can defer up to $12,500 ($15,500 if over age 50).4
  • Does not allow Roth (after-tax) contributions, a vesting schedule or loans.
  • Must establish between Jan. 1 and Oct. 1.
  • May require the employer to cover employees who would be excludable under standard 401(k) plan provisions.
1 Lincoln Financial Survey, May 2017.
2 The state of Employee Benefits, EBRI, April 10, 2018.
3 Unpublished Employee Benefit Research Institute estimate from the 2013 Medical Expenditure Panel Survey, 2017.
4 Internal Revenue Service limits as indexed for the 2018 tax year. For IRS contribution limits in future years, go to IRS.gov.