If you are a Small Business Owner, listen up. What are you doing with your Business Retirement Plan? Do you even have a Retirement Plan?
There are several types of retirement plans out there. There are plans that fit a sole proprietor just starting out to ones that fit business owners with 100s of employees. Here is a sample of Retirement Plans out there
- Traditional IRA
- Roth IRA Money Purchase Plan
- Money Purchase Plan
- Self-Directed IRA
- 401K
- Roth 401K
- 403(b)
- 457 Plans
- Defined Benefit Pension Plan
- Cash Balance Pension Plan
- Money Purchase Pension Plans
- Target Benefit Pension Plans
- Profit Sharing Plans
- SEPs (Simplified Employee Pension)
- SIMPLES(Savings Incentive Match Plans for Employees)
The key to selecting a Retirement Plan is to find the one that best fits the situation of the business owner. Here are a few questions to help the business owner narrow down the choices.
1) Why does the Business Owner want a Retirement Plan?
- Is it to provide income in retirement?
- Is it to attract employees?
2) Do you need a Qualified Plan or a Non-Qualified Plan?
- A Qualified Plan is a plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries
- A Non-Qualified Plan is any type of tax-deferred, employer-sponsored retirement plan that falls outside of employee retirement income security act (ERISA) guidelines. Non-qualified plans are designed to meet specialized retirement needs for key executives and other select employees. These plans also are exempt from the discriminatory and top-heavy testing that qualified plans are required to meet.
3) What makes the most sense for the Business Owner a Defined Benefit Plan or a Defined Contribution Plan?
- Defined Contribution Plan – Business Owner contributes a predetermine amount to the plan each year and employees are responsible for ensuring adequate retirement funding.
- Defined Benefit Plan – Each retirement plan member will receive a predetermined benefit each year during retirement and Business Owner is responsible for ensuring adequate retirement funding.
If you are able to able to answer these questions, you are ready to select the Retirement Plan that best fits your business needs. If you feel you still need more direction, you should consider talking with a Retirement specialist such as a Certified Financial Planning Professional to help you make the best choice for you.
Are you ready to make your retirement plan choice?
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Author
Isaac is a Fee-Only (no products sold) Certified Financial Planner® Practitioner. Isaac founded Stalwart Financial Planning with offices in Fayetteville NC and Durham NC. Isaac provides comprehensive planning and investment management services to individuals from all walks of life. Isaac can be reached by phone at 910-867-8464, or by email (iallen@StalwartPlanning.com). Visit him at Stawart Financial Planning www.StalwartPlanning.com.