If you are a business owner, you may have wondered which type of retirement plan you can offer your employees or use yourself. There are so many options suitable for different participants like self-employed individuals, enterprises with less than 100 employees, and those with over 100 workers. If you’re looking for a good retirement program that is perfect for your employees and business, you should go through the following options:
401(k) Plans
This is the most popular employer-sponsored retirement program that has more than 100 million participants. It is a defined contribution plan, meaning the employees are the ones who decide the amount they will contribute to their account. Employees can choose either a traditional or Roth retirement plan with this plan. Under the traditional plan, the contributions are deducted from the employee’s paycheck before income taxes are calculated and deducted. However, with a Roth plan, the contributions are deducted from the employee’s salary after taxes have been subtracted from it. Therefore, although the employees will contribute less on average, they will not pay taxes on their contributions when they’re withdrawing the amount during retirement.
SIMPLE IRA
This plan is only for enterprises that have less than one hundred employees. It enables small businesses to easily contribute to their employee’s retirement savings. SIMPLE IRA resembles a 401k in that the employees can choose to contribute to the retirement program account before taxes are deducted from their salaries, allowing them to obtain instant tax benefits.However, the main difference between the traditional 401k and the SIMPLE IRA is that the employees may be able to contribute up to $20,500 in the former and only $14,000 in the latter. In addition, a SIMPLE IRA is not as flexible as the traditional plan.
Calsavers IRA
California businesses that have 5 or more employees are mandated to provide a qualified retirement plan or the state option, Calsavers IRA as provided by the 401k providers at Ubiquity. Calsavers, previously known as Secure Choice, is a retirement savings plan that caters to many private-sector workers who don’t have a way of saving for retirement.
This plan enables employers to set up an individual retirement account (IRA) for every eligible employee. In addition, the deductions from the employee’s payroll are done automatically and are set to five percent of an employee’s gross pay. However, the deductions are adjustable, and the employees can either increase or reduce the contribution percentage on their gross income.
One unique feature of this account is that it’s portable. Therefore, if an employee changes jobs, they can retain their account. Therefore, they can move with it throughout their working life. Furthermore, the money that is deposited in the account can be invested in a money market fund, a core bond fund, an environmental, social, and governance fund, and global equity funds.
Conclusion
There are many retirement options that small businesses can offer their employees such as 401(k) plans, SIMPLE IRA, Simplified Employee Pension (SEP) Plan, Employee Stock Ownership Plans (ESOPs) and Cash-balance plans among others. Therefore, business owners can choose the type of retirement plan that is more suitable for their businesses and their employees.