Do you remember what it was like going to the ice cream shop as a youngster? Let’s take a walk through memory lane. As you step into the parlor, the cold air meets you with a subtle sense of euphoria and excitement. Once you become acclimated to the new environment, your focus shifts back to the important question at hand. Investigating the situation further, you walk back and forth intently looking into the glass at the beloved tastes of heaven just moments away. You get in line, perhaps chattering a bit with the family or friends that you went with and before too long it is decision time. What flavor would you like?
For the small to medium-sized business owner, choosing ice cream is a lot like choosing a retirement plan. There are many flavors that might do the trick for you, but which one will be the most satisfying! Before looking at a particular type of retirement plan, let’s look at some of the business benefits to employers who establish retirement plans.
*Employer contributions are tax deductible
*Assets in the plan grow tax-free
*Assets grow with compounding interest
*Businesses may receive tax credits and other incentives for starting a plan
*A retirement plan can attract and retain better employees
Now that you know there are several retirement plans (flavors) you can choose from and some of the benefits, let’s keep things “simple” and look at one of the options available as a retirement plan platform.
1). SIMPLE IRA (Plain Vanilla)
The SIMPLE IRA Plan is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan. Some of the qualifications include:
*Have a business with 100 or fewer employees
*Need to complete just a form or two
*Cannot have any other retirement plan
Here are some of the advantages:
*Easy to set up and run
*Administrative costs are low
*Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
*You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of all eligible employees’ pay.
Under a SIMPLE IRA plan, you, the employer, make contributions to traditional IRAs (SIMPLE IRAs) set up for each of your eligible employees. In addition, this type of plan allows your employees to defer a part of their salaries into the plan for retirement. A SIMPLE IRA Plan is funded both by employer and employee contributions.
Maximum elective deferral amount: $11,500
As an employer, when you establish a retirement plan there is evidence of the many tax and employee retention benefits that you immediately receive. One of the benefits that is often overlooked is the future value of your hard-earned contributions! Let’s have a look at the following scenario.
Within a SIMPLE IRA, your maximum elective deferral amount is $11,500. Let’s assume the following.
If one were to put $11,500 into a plan annually and earn 7% compounding interest over the next 30 years, the accumulated tax-free growth would be:
$1,177,254.98!!
So there you have it. Choosing a retirement plan for employers is a lot like going to the ice cream shop. Once you select your flavor, enjoy!
Note: All asterisks were taken from www.irs.gov
Written by:
Brandon Cass
Financial Advisor
Crowell, Weedon & Co. est. 1932
1921 Palomar Oaks Way Ste. 102
Carlsbad, CA. 92008
Toll Free (800) 345-8312
Direct (760) 448-4129
Fax (760) 438-2030
*There are risks inherent in any investment and there is no assurance that any investment, money manager, asset class, style or index will provide positive performance over time. Any opinions or illustrations expressed herein are that of the author and not necessarily Crowell, Weedon & Co. Partners of and/or the firm of Crowell, Weedon & Co. in the normal course of business may have a position in the securities mentioned above.
