Vermont Retirement Planners, LLC

54 Highland Avenue
Manchester Center, VT 05255
nick@vtretirement.com
(802) 367-3958

87 North Main St.
Rutland, VT 05701
nick@vtretirement.com
(802) 772-7945

Retirement Read Time: 4 min

Choosing a Retirement Plan that Fits Your Business

If you have yet to develop a retirement plan for your business, or if you're not sure the plan you've chosen is the right one, here are some things to consider.

How much can my business afford to contribute?

The cost of contributions may be managed by the plan type.

A simplified employee pension plan (SEP) is funded by employer contributions only. SEP contributions are made to separate IRAs for eligible employees.1

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs blend employee and employer contributions. For example, some employers match employee contributions up to 100% of the first 3% of compensation. Others may contribute 2% of each eligible employee's compensation. It's up to the employer to decide the formula based on what works best for the business.2

A 401(k) is primarily funded by the employee; the employer can choose to make additional contributions, including matching contributions.3

What plan accommodates high employee turnover?

The cost of covering short-tenured employees may be managed by eligibility requirements and vesting.

With the SEP-IRA, only employees who are at least 21 years old, earn at least $650 in compensation, and have been employed in three of the last five years must be covered.4

The SIMPLE IRA must cover employees who have earned at least $5,000 in any prior two years and are reasonably expected to earn $5,000 in the current year.5

The 401(k) and defined benefit plan must cover all employees who are at least 21 years of age. These retirement plans are open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years.

Vesting is immediate on all contributions to the SEP-IRA, SIMPLE IRA and 401(k) employee deferrals, while a vesting schedule may apply to 401(k) employer contributions and defined benefits.

Do I want to maximize contributions for myself (and my spouse)?

The SEP-IRA and 401(k) offer higher contribution maximums than the SIMPLE IRA. For those business owners who are starting late, a defined benefit plan may offer even higher levels of allowable contributions.

My priority is to keep administration easy and inexpensive.

The SEP-IRA and SIMPLE IRA are straightforward to establish and maintain. The 401(k) can be more onerous, but complicated testing may be eliminated by using a Safe Harbor 401(k). Generally, the defined benefit plan is the most complicated and expensive to establish and maintain of all plan choices.

1. Like a Traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
2. Like a Traditional IRA, withdrawals from a SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
3. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
4. Investopedia.com, June 29, 2022
5. Investopedia.com, November 26, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

 

Related Content

Who Is Your Trusted Contact?

Who Is Your Trusted Contact?

This investment account question is vital and answered as early as possible.

Retirement Plan Choices for Small Businesses

Retirement Plan Choices for Small Businesses

Retirement choices can be intimidating. Picking the right strategy.

Keep Your Umbrella Handy

Keep Your Umbrella Handy

Umbrella liability can be a fairly inexpensive way to help shelter current assets and future income from the unexpected.

 

Have A Question About This Topic?







Thank you! Oops!

Don’t Be Your Own Worst Enemy

Emotional biases can adversely impact financial decision making. Here’s a few to be mindful of.

Saving on Subscription Service Costs

There are ways to improve your physical fitness without denting your fiscal fitness.

Filing Final Tax Returns for the Deceased

The federal government requires deceased individuals to file a final income tax return.

View all articles

How Much Home Can I Afford?

With a few simple inputs you can estimate how much of a mortgage you may be able to obtain.

A Look at Systematic Withdrawals

This calculator may help you estimate how long funds may last given regular withdrawals.

What Is My Current Net Worth?

Use this calculator to estimate your net worth by adding up your assets and subtracting your liabilities.

View all calculators

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

View all presentations

Timing Your Retirement

This short video illustrates why knowing when to retire can be a crucial part of your strategy.

When Markets React

When markets shift, experienced investors stick to their strategy.

Keeping Up with the Joneses

Lifestyle inflation can be the enemy of wealth building. What could happen if you invested instead of buying more stuff?

View all videos