Retirement plans are important for every business, including the small business. They keep the future of business secure and maintain the competitiveness by keeping good employees. There are various retirement plans, but what is the most suitable for small business? Well, we will recommend a “Savings Incentive Match Plan for Employees” plan or shortened as SIMPLE IRA.
What is SIMPLE IRA?
The SIMPLE IRA is retirement plan designed for businesses with fewer or equal to 100 employees. Although almost similar to 401(k) plan, SIMPLE IRA is less expensive for small businesses. The administrative fees only cost as little as $480. In each of the first 3 years of the plan, the business may qualify for a tax credit up to $500 for start-up administrative costs. The employer can get business expense by deducting annual employer contributions to the plan.
Moreover, SIMPLE IRA is also less complicated regarding the paperwork. The requirements to participate are fewer. In the process, the company also only needs to handle fewer reporting matters. In the end, the company gets less paperwork.
How Does It Work?
The employer offers a SIMPLE IRA contribute to up to 3% of the employee salary. Whether the employee decides to participate in the plan or not, the employer still can contribute to a flat 2% salary. The contribution limit for SIMPLE IRA in 2017 is $12,500. However, when the employer allows, there is also a catch-up contribution limit of $3,000 that make the contribution limit to be $15,500. The catch-up contribution is only for participant age 50 or older. So, if the employee is age 50 or older, he can add the catch-up contribution into the SIMPLE IRA. Moreover, the employee also can increase the limit up to $18,000 if he participates in any other retirement at the same time.
Actually, retirement plan decision doesn’t only depend on the number of employees, but more about how much the employer wants to put into the plan. If you are still unsure about what you should do, you can ask financial planner from ADP Workforce Retirement Plans for a help. They will help you to choose which retirement plans suitable for your business type.