Pension Plans-Some Basic Selections for Smaller Companies

July 12, 2012 - PRLog -- Ultimately, every owner stops working; your employees will stop working and retire too. As a company owner here are some basic options to help plan for the golden years.

    §401(k) – Most owners consider a §401(k) plan an option for larger companies, however this kind of retirement plan can be set up for a one owner/employee business. This is known as a Solo §401(k). A lot of clients think the company has to match employee contributions, this is not true. Matching is typical however the plan’s founders can arrange the plan to not match employee contributions. The companies that have enough money to match employee contributions usually see employee morale go higher. Participants usually elect to have a set percentage or dollar amount deducted from their paycheck. The employee limits on contributions to a retirement plan for 2012 is $17,000 for those under 50 years, and $22,500 for those over 50. §401(k)s are available in Traditional and Roth versions. A Roth or Traditional plan version permits the employee to choose between, paying taxes in the beginning or paying taxes when money is withdrawn from the account. Roth §401(k) account owners pay taxes in the beginning. Traditional §401(k) account owners pay taxes when money is withdrawn. 401(k) regulations also permit loans if the plan is setup with that option.

   SEP- SEP (Simplified Employee Pensions) IRAs are an easy option for many small companies. These plans are comparatively undemanding to administrate. Participants generally cannot defer salary to the account.  The company makes contributions based on a percentage of salary. Some participants in a SEP-IRA plan start additional IRAs to plan for the future. One major benefit to this plan is that a SEP-IRA can be set up after the tax year is closed. The employer contribution can be made as late as the due date (including extensions) of the company’s tax return for that year.  IRS regulations do not permit loans, early withdrawals, or catch up contributions.

   SIMPLE IRA - means for Savings Incentive Match for Employees. Relative to other kinds of pension plans the name "simple" is true. One downside is that the company is obligated to match employee contributions. Another thing to consider is the max contribution allowed to this type of plan is $11,500. The reporting requirements for this kind of plan are minimal.

   The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.