Retirement Savings Plan Options for Your Small Business

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As a small business owner or employer, it’s important to select the right retirement savings plans for your employees. The better you understand the plans available, the better your employees will be able to save for retirement and lower their taxes. Learn more about the different retirement savings plans available, what they entail and some tips for selecting the right ones.


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Components of effective employee savings

Employee savings plans (ESP) are pooled investment accounts that allow employees to deposit part of their pre-tax earnings into a separate account for various long-term financial goals. ESPs are often matched by an employer. This means an employer can contribute a certain amount to the employee’s retirement account themselves.


Employees can determine the amount they’d like taken out of their paychecks that will go toward their ESP accounts. Employees also have the option of withdrawing from their contributions, but they may have to wait a certain amount of time before getting access to their savings accounts. In addition, employees may need to be employed for a specific amount of time before they start an ESP and have the ability to withdraw from it.


ESPs are typically retirement plans or health savings plans. The two main types of retirement plans are as follows:


  • Defined contribution plans or those offered by corporations: Examples of the latter are the commonly known 401(k) plan and an individual retirement account (IRA). A 403(b) plan can also be a defined contribution plan.
  • Public or non-profit entity-sponsored plans: These are known as 403(b) or 457(b) plans. Private, non-profit or government employees are offered 403(b) plans. State and local government employees are offered 457(b) plans. There are also 457(f) plans, which are offered to employees from non-governmental, non-profit organizations.

An employee’s contribution to either of these retirement plans will lower their taxable income. In addition, these ESPs have the added benefit of tax deferral until a withdrawal has been made from the account. It’s important to note that interest may or may not accrue depending on the state in which you reside.


Here are the best retirement plans to consider as a small business owner:

  • Simplified Employee Pension Plan, SEP IRA
  • Savings Incentive Match Plan for Employees, SIMPLE IRA
  • Savings Incentive Match Plan for Employees, SIMPLE 401(k)
  • One-participant 401(k) plan
  • Defined-benefit pension plan

Related: How to Motivate Your Employees



Tips for how to choose the best employee savings plans

A retirement savings plan has several characteristics and components. It’s important to keep these in mind when selecting the right plans for your small business. Here are some tips that can help you choose the best ones:


  • Determine your business needs: As an employer, you should determine what your company needs in particular. This will ensure that you choose the right plans. For example, you may want a plan with good tax benefits.
  • Consider the size of your company: Though your business is small, any changes in size should be considered when selecting the right plans. For example, if the number of highly paid employees at your business increases, a 401(k) might be a better choice. When you select retirement plans, make sure they’re providing good coverage for your small business employees.
  • Make sure you’re not discriminating: When you select retirement plans for your small business, it’s important to choose the best benefits for all of your employees, not just those that are paid the most. This ensures all employees are treated fairly.
  • Consider the contributions and the limits: You should also take into consideration the contribution limitations for each plan. This limits the number of contributions you and your employees can contribute to a retirement savings account. In addition, the entities responsible for making contributions should also be considered. As an employer, you should know whether or not you’ll need to make contributions.
  • Determine the amount of responsibilities: Every plan will require a different amount of responsibilities for you to handle, so it’s important to keep that in mind when making decisions. Ask yourself if the plan is easy to administer, how long it will take to administer and if you have to file any forms. Questions like these will help you narrow down the best plans for your business.
  • Consider the cost: Some plans may require an initial setup or annual maintenance fee. Because of this, it’s important to determine the cost for the plans you’re looking into.
  • Withdrawal limits: It’s also important to consider when withdrawals from your employees are allowed, if at all.


Best practices for retirement savings plans

In order to effectively implement a retirement savings plan, it’s important to consider some of the best practices. Here are a few steps you should take when offering retirement plans for your small business:


  • Determine a plan’s fiduciaries: It’s important to know who a plan’s trustees are and what they’re responsible for. Some examples of fiduciaries include executives or retirement plan committee members. Essentially, a fiduciary maintains control over the plan’s holdings.
  • Educate employees on the plan offerings: Employees should fully understand what options are available to them and what they entail. They should also be made aware of how important it is to save for their long-term financial goals. Employers should educate their employees and encourage them to make wise investments.
  • Continuously monitor the plans: ESPs should be evaluated over time. This includes monitoring the expenses and structure of each plan as well as how employees are liking the plans.
  • Offer a variety of plan options: Employees should have a diversified investment portfolio and investment offerings. A greater variety of options will help them invest more wisely.
  • Provide assistance to executives: Many plans come with contribution limits. Executives should receive help in regard to qualified plans.

Related: 10 Recruiting Strategies for Hiring Great Employees


Employee savings FAQs

Here are some frequently asked questions regarding employee savings:


Can an employee roll over their plan if they move to a different company?

If an employee has a defined contribution plan, they’re able to roll their plan over into a similar plan should they switch employers. They can also move their ESP funds into an IRA.


What are some of the benefits of retirement savings plans for employers?

For starters, contributions made by employers are tax-deductible. In addition, assets may be able to grow tax-free, depending on the state you live in. Retirement plans can also attract employees to your company and have the potential to reduce employee turnover.


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