by guest contributor
Brian M. Rees, CFP®, ChFC®, CPFA®, MBA®
Financial Advisor
So you own a small business and you want to save money for your own retirement? Or you want to put in place a retirement account to attract, retain and/or reward employees?
These days, a competitive benefits package is as important as ever. Working with a retirement plan specialist is vital when it comes to choosing the correct plan to best serve you and your employees. Below you will see a basic outline of the different plans along with some plan characteristics.
401k Plan
- Flexible plan design (eligibility, Roth or pre-tax contributions, loans, matching contributions or not, etc.)
- Save up to $20,500 or if over age 50 you can save $27,000 (in 2022)
- Annual IRS filings required
- Annual plan testing required (Safe Harbor plans which require a match or employer contribution can avoid some of the testing)
- Profit sharing plans can also be added on
- The retirement plan advisor can act as a fiduciary
- Plan set-up deadline is 12.31
Cash Balance Plans
- These plans are in addition to a 401k plan when a business owner wants to & has the ability to save more than just the 401k maximum
- May also provide a large tax benefit to the business
- Employees will also need to get an employer contribution in this type of plan
- Added actuarial cost
- Requires a commitment to fund for at least 3-5 years
Solo 401k
- Same as much of the above
- Can only be used with a one-person company or owner plus a spouse
- IRS filing once the plan is above 250k
SIMPLE IRA
- Simple to establish
- Lower contribution amounts, $14,000 or $17,000 if over age 50
- Only pre-tax contributions allowed
- No loans available
- Must have a dollar for dollar match up to 3%
- No IRS filings/no compliance testing required
- Employer must have 100 or less employees
- Generally, a lower cost option than the 401k plan
- Initial plan set-up deadline is Oct. 1
SEP IRA
- Usually only used when there are no employees
- Maximum contribution is lesser of 25% of compensation or $61,000 (2022)
- All eligible employees must receive the same percentage contribution
- Only pre-tax money
- Only employer money can go into the plan
- No IRS filings or compliance testing
- Plan setup deadline is the tax filing deadline with extensions
These 5 retirement plans are the most popular with small businesses because of the tax advantages, relatively low cost, the ability save a small amount all the way up to a lot of money in the correct plan.
It is important for all business owners to work closely with their CPA and a financial advisor who is also a fiduciary. At CKE Financial Services, LLC, we guide clients to the correct retirement plan then help them properly invest based on their age, risk tolerance and goals. There is no one size fits all plan because of the varying needs of different businesses.
About the author
Brian M. Rees, CFP®, ChFC®, CPFA®, MBA®
Financial Advisor
440-638-4662
Raymond James
CKE Financial Services, LLC
E&M Consulting
191 American Blvd., Ste 205, Westlake, Ohio 44145
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC
Investment Advisory Services are offered through Raymond James Financial Service Advisors, Inc. E&M Consulting is not a registered broker/dealer and is independent of Raymond James Financial Services.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks of CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.