Most small-business owners share a variety of critical priorities, such as managing taxes, attracting and rewarding valued employees, and establishing a long-term strategy to ensure their own financial security. Fortunately, small-business owners also share an option that could help address all of those goals: Sponsoring a workplace retirement plan.
Small employers who decide to sponsor a plan generally expect to enhance the overall business. Among the most common motivations for employers to sponsor a plan are to increase their ability to attract and retain employees, and to improve employee morale. In addition, retirement plans offer valuable tax deductions and allow for tax-deferred compounding of investment earnings.
A Look at Your Options
There are three broad categories of retirement plans available to small businesses. The one you choose should reflect your company's size, financial situation, and ability to comply with regulatory oversight and administrative responsibilities. You may want to consult a financial professional to help you choose a plan that's right for you.
Making the Right Choice
As you review these retirement plan options, keep in mind there are many points to consider, such as evaluating your business's unique needs and goals, protecting your plan from creditors, and limiting your own fiduciary responsibility. For these reasons, it is generally advisable to speak with a retirement plan expert before making any decisions.
Points to Remember
- By sponsoring a workplace retirement plan, small-business owners may be able to better pursue a wide range of important goals, such as managing taxes, attracting and retaining employees, and preparing for a financially secure future.
- The vast majority of small-business owners who sponsor a retirement plan believe that it has a positive effect on their ability to retain employees and on workers' attitudes and performance.
- Of the three main types of retirement plans, SEP-IRAs and SIMPLE IRAs are the least expensive and most convenient to administer. Qualified plans are more complex, but 401(k) and Roth 401(k) plans are typically the most expensive and time consuming to manage.
- Before deciding on a plan, small-business owners should reflect on the goals they hope to achieve and their financial and managerial ability to pursue those goals in light of each plan's unique requirements.
- It is also widely recommended that small-business owners consult an experienced retirement plan professional in order to arrive at and implement the right decision.
© 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Re-published with permission.