Small Business Retirement Plans – Which Should You Choose?

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Small Business Retirement Plans

If you’re a small business owner, you’ve likely considered offering your employees a retirement plan. If you’re like most small business owners, you’ve likely run into a wall of confusing retirement plan options.

  • Is your company too small to offer a 401K?
  • What are the alternatives to a 401K that still offer your employees an advantageous retirement plan?
  • Should you not offer a retirement plan at all?

We can put that last questions to rest with this: to be competitive in your field, you really do have to offer some type of retirement plan for your employees. After all, everyone wants to put money aside for their retirement, enjoy tax benefits of retirement savings and potentially receive matching amounts from their employers.

The best candidates in any field research companies for their retirement benefits. You wouldn’t want the best minds and best workers in the job pool to bypass you and bring their talents to your competitors because those companies do offer retirement benefits. In short, offering a small business retirement plan is a must for your business. You just need to look at your options to choose the best type of retirement plans for your situation.

Are 401Ks your only option?

You might think that 401Ks are the only option. They are of course a good option, but they can be pretty expensive. 401Ks are designed for larger companies with ten or more employees but they can still work well for smaller companies of fewer than ten employees. The details of a traditional 401K plan just might be a perfect match for your company. A qualified financial advisor can help you make that determination.

What about a Simple IRA?

Quite often, a client comes to us thinking that he or she wants a 401K plan, but ends up choosing a Simple IRA option for employees’ retirement funds instead. A Simple IRA plan provides small employers with a simplified method of contributions toward their employees’ retirement plans, including their own. Thus, the term ‘Simple IRA.’

In this type of plan, employees may opt to make salary reduction contributions to their Simple IRA plans, and you as employer would be required to make matching or other contributions to IRAs set up for each of your employees. Your financial planner can help you navigate the rules and differences of Simple IRAs to determine if these plans are an ideal match for your company, your number of employees and your financial responsibilities for these plans.

The IRS provides FAQs about Simple IRAs on their website if you’d like to do some research on your own before meeting with your financial advisor for your company’s plan selections.

401K, Simple IRA or Single K – A financial planner can help you choose

When researching employee retirement fund options, always talk to a non-sales person such as a financial planner, to ensure information is motivated by your best interests, rather than by a financial kickback for recommending a particular type of plan that he or she is paid to promote. You want objective information and your financial planner’s experience right from the start to help you navigate the pros and cons of employee retirement plans.

Financial planners can reveal the inner workings of 401K plans, Simple IRA plans, and something referred to as a ‘Single K’ plan – a 401K for one person. Given the many options a small business has when choosing a retirement plan, working with a financial planner can help prevent problems down the road.

For example, let’s say that you, as sole proprietor, arrange a ‘Single K’ plan for yourself. If, at some point in time, you hire another person to work at your company, you can’t use that plan. You’ll have to go into a new arena of other retirement plans.

A qualified financial planner takes these matters on a case-by-case basis, looking at your company’s situation and presenting the myriad of options you hadn’t thought of. They ask questions like:

What if your company expands, or your market expands, and you need to hire one or more additional employees?

It’s a question that might not have occurred to you in your present situation but can impact you later down the road.

A financial planner can prepare you for now, and for later, when it comes to your employee retirement plans, including your own, so that you’re always sure-footed on your path as a small business owner. Contact us with any questions you may have about the best match in employee retirement plans for your company, and listen to our podcast here for additional information on this topic.


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