By: Daren Pladson, Financial Advisor, Eide Bailly Financial Services
Let’s face facts. As a business owner you work tirelessly to grow your business, to make decisions and take responsibility and care for your employees. Sometimes, in the day-to-day details, it’s hard to see ahead to the future. What happens when it’s time to walk away from the daily duties of all you’ve worked so hard to build? Will you be able to enjoy your retirement (yes, it will happen … someday) and sustain the lifestyle you’re accustomed to? Don’t ignore the question, embrace it. It’s important to consider your end game now and plan ahead.
While the thought of establishing a retirement plan may seem daunting, it is much easier than you think and may significantly benefit both you and your employees.
In fact, a recent survey conducted by Bank of America Merrill Lynch of small business owners reveals that only 33% of all small businesses offer retirement plans even though 75% of those businesses feel a sense of responsibility towards their employees. What many small business owners may not realize is that retirement plan options are fairly affordable, and there are several options to choose from.
You, of course, have to be armed with the right information. Here are a few of the major features of several plan types:
Simplified Employee Pension (SEP)
A SEP will allow you to set up a type of IRA for yourself and each of your employees. You must contribute a uniform percentage of pay for each employee, although you won’t have to make contributions every year. SEPs have low start-up and operating costs and can be established using a two-page form. As a small employer, you can also decide how much to put into an SEP each year, offering flexibility when business conditions vary.
SIMPLE (Savings Incentive Match Programs for Employees of Small Employers) plans are usually set up as IRAs. They are easy to establish and inexpensive to administer. Your contributions as an employer are flexible: you can either match employee contributions dollar for dollar—up to 3% of an employee’s compensation—or make a fixed contribution of 2% of compensation for all eligible employees.
401(k) plans – both traditional and Roth — have become a widely accepted retirement savings vehicle for small businesses. They can vary significantly in their complexity. However, many financial institutions and other providers offer prototype 401(k) plans, which can greatly lessen the administrative burden on individual employer.
Your contributions as an employer to a profit-sharing plan are discretionary. Depending on the plan terms, there is often no set amount that an employer needs to contribute each year. As with 401(k) plans, profit-sharing plans can vary greatly in their complexity, and prototype plans offered by financial institutions can reduce the administrative burden on individual employers.
But wait, there’s more. Another good source of information on retirement plans can be found at the Department of Labor’s website. And, of course, the financial advisor or CPA you work with should be able to provide you with educational materials.
Just as gowing your business is no easy task, finding the right strategy to save for retirement isn’t simple either. You’ll feel good knowing you’re taking steps today to ensure your (and your employees’) future.
Financial Advisor offers Investment Advisory Services through Eide Bailly Advisors LLC, a Registered Investment Advisor. Securities offered through United Planners Financial Services, Member of FINRA and SIPC. Eide Bailly Financial Services, LLC is the holding company for Eide Bailly Advisors, LLC. Eide Bailly Financial Services and its subsidiaries are not affiliated with United Planners.