CEDAR VALLEY BUSINESS MONTHLY
Retirement plans bring big beneﬁts to small business If you’re a small business owner, it may be less burdensome than you think to offer retirement beneﬁts to your employees. A retirement plan can enhance your business. It can improve employee morale and increase retention. Your Larry K. Fox is senior ﬁnancial employees beneﬁt from consistent, adviser with automatic and Ameriprise tax-advantaged Financial Inc., Waterloo. saving. You may Contact him not be required to at 234-7000. make employer contributions, but if you do those contributions are tax deductible. And you can participate in the plan to help save for your own future. Here’s a brief introduction to your options for retirement savings.
Simple IRA plans A simple IRA is one of the easiest ways to help employees save for retirement. It requires minimal paperwork and no IRS reporting. Employees can con-
tribute up to 100 percent of income up to $11,500 limit for 2010 or $14,000 if over age 50. For 2010, employers can match up to 3 percent of the eligible employee’s compensation or $11,500 (whichever is less) or can choose to make a non-elective contribution of 2 percent of each employee’s compensation. Employer contributions are tax deductible. The assets reside in self-directed accounts, meaning employees decide how assets are invested. This option is only available if you have 100 or fewer employees. A word of warning: while all plans impose a penalty for early withdrawal, withdrawing from a simple IRA plan within the ﬁrst two years of participating may result in a whopping 25 percent penalty.
employee. SEP IRA plans allow an employer to establish minimum eligibility requirements for employee participation. Because an employee must establish an IRA to receive employer contributions, they may also make traditional IRA contributions to their IRA. For 2010, you may contribute up to 25 percent of each employee’s gross income or a maximum of $49,000. You are not required to contribute every year, lending ﬂexibility in the event of a down year. In years you do contribute, you must fund the plans of all eligible employees. You may create your own SEP IRA and make contributions toward your retirement.
deferrals. For 2010, the deferral limit was $16,500. You can make tax-deductible matching contributions. The savings are typically invested in self-directed investments such as mutual funds. These plans are require more plan administration that SEP or SimpleIRA plans. There are other ways to help employeesprepareforretirement. Options such as proﬁt sharing plans and employee stock ownership plans (ESOPs) are complex and regulated; consult a certiﬁed ﬁnancial planner who can help you explore whether they make sense for your business.
IRA, contributions generally are tax deductible. Upon withdrawal, distributions will be subject to income tax. The deductibility of your contributions depends on your adjusted gross income and whether or not you or your spouse participate in a workplace retirement plan. Contributions to a Roth IRA depend only on your adjusted gross income. For 2010, the income limit to make a Roth IRA contribution is $120,000 for a single tax ﬁler and $177,000 for a married joint tax ﬁler. The Roth IRA is funded with after-tax dollars, allowing you to take tax-free withdrawals in retirement if certain holding period requirements are met.
Saving with an IRA
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A 401(k) plan is a deﬁned conUsing a traditional or Roth IRA, The IRS and the Small Busitribution plan to help employees you can contribute up to $5,000 ness Administration provide free SEP IRA plans save. The plan is funded primarily per year ($6,000 if you’re 50 years resources to help small businessA simpliﬁed employee pension by employees with elective salary old or above). In a traditional es establish retirement plans. plan requires minimal paperwork and no IRS reporting on behalf of the employer. With a SEP IRA, the employer makes a deﬁned contribution on a pre-tax basis to an individual retirement account established for each eligible