There are several retirement plans for small businesses, ranging from one to many employees.
At Wave Tax, we offer a variety of options to help you determine the most suitable plans for you and your business.
Let’s explore these choices.
• Individual 401(k) Plan: Traditional and Roth
You can make substantial retirement contributions while receiving many of the same advantages of a conventional 401(k) plan. And as an owner, you can contribute as an employer or an employee.
Who is eligible for an individual 401(k) plan?
An individual 401(k) plan is available to self-employed individuals and business owners, including sole proprietors, limited liability companies, partnerships and independent consultants with no employees other than a spouse.
What are the advantages of an individual 401(k) plan?
This account offers a number of advantages to its users, such as:
- Higher potential contribution limits than SEP IRAs and profit-sharing plans.
- Ability to make profit-sharing contributions and salary deferrals
- Flexible annual contributions
What are the tax implications of an individual 401(k) plan?
The tax implications vary depending on whether it is a traditional or Roth plan:
- Contributions to a traditional individual 401(k) plan are generally tax deductible.
- Contributions to an individual Roth 401(k) plan are after-tax salary deferrals.
- In the case of a traditional individual 401(k) plan, earnings grow tax-deferred and assets are not taxed until withdrawn in retirement.
➡️ Note: Qualified Roth distributions are tax-free if you are over age 59½ and have held the account for more than 5 years.
What are the fees for an individual 401(k) plan?
Generally, minimum opening deposit has no cost, the same for account opening or maintenance fees, although depending on the opening organization, account fees, fund charges and brokerage fees may apply.
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• SEP IRA
If you are a business owner, you can fund the account with tax-deductible contributions based on your needs and those of your employees.
Who is eligible for a SEP IRA?
Many types of businesses can establish a SEP IRA plan, but it is best suited for self-employed individuals and small businesses with no employees or many employees.
➡️ Note: With these plans, small business owners can contribute to their employees’ retirement as well as their own retirement savings.
What are the advantages of a SEP IRA?
SEP IRAs offer multiple advantages, and employers also get:
- Tax-deductible contributions that are immediately vested
- Tax-deferred earnings
- Flexible annual contributions
- High contributions for employers
- A way to contribute to eligible employees’ accounts
What are the tax implications of a SEP IRA?
Company contributions are tax deductible. Contributions and earnings grow tax-deferred and are not taxed until withdrawn.
What are the costs of a SEP IRA?
There is usually no fee to open or maintain an account with financial institutions, and costs may vary.
At Wave Tax we always offer our clients the best account opening options.
Generally, the minimum opening deposit, commissions and account maintenance is $0, although other fees, fund charges and brokerage commissions may apply.
• Simple IRA
A low-cost, tax-deductible plan that allows both employees and employers to contribute. It is similar to a 401(k), but with less work.
Who is eligible for a SIMPLE IRA?
Simple IRA plans are best suited for businesses that employ 100 or fewer people, each of whom earned at least $5,000 during the previous year.
This includes all employees, whether or not they are eligible to participate in your Simple IRA plan.
Generally, employees who earned $5,000 in any of the previous 2 years working for the employer are eligible for this plan.
➡️Note: A Simple IRA may also be best suited for employers who do not already maintain or contribute to another employer-sponsored retirement plan in the same year.
What are the advantages of a SIMPLE IRA?
✅ For employers:
- A way to easily and regularly contribute to their own retirement, and to help their employees contribute to theirs.
- A low-cost plan funded primarily by employees.
- Business expense deduction for all contributions
- Easy administration without the need to file special returns with the IRS.
✅ For employees:
- Company contributions, based on their contribution (called matching contributions) or a percentage of their salary.
- Pre-tax contributions for the participants, such as in a 401(k) plan
- Tax-deferred earnings
What are the tax implications of a SIMPLE IRA?
All contributions are tax deductible to the company. Contributions and earnings grow tax-deferred and are not taxed until withdrawn.
Pre-tax contributions: Employee salary deferral contributions are made before federal income tax is deducted.
What is the pricing for a Simple IRA?
At Wave Tax, we offer our clients the best financial institution options for account opening.
Generally, the minimum opening deposit, commissions and account maintenance is $0, although other fees, fund charges and brokerage commissions may apply.
• Personal Defined Benefit Plans
The personal defined benefit plan helps self-employed and small business owners save aggressively for retirement by allowing you to make very large contributions.
You simply set a desired level of retirement income, and the amounts contributed are adjusted each year to help you reach your goal.
➡️ Note: Each financial institution offers a personal benefit plan. At Wave Tax we can help you find the solution that best suits your needs.
What do you get with the defined benefit account?
This plan features high contributions that are usually 100% tax-deductible, within IRS limits, as well as a predetermined benefit at retirement.
The fees vary depending on the financial institution.
• 401(k) Plans for Companies
Business plans offer a retirement plan individually designed for your company, regardless of its size.
With a 401(k) plan, employees can typically take larger salary deferrals than with other retirement plans, and your company gets tax benefits.
What do I get with a 401(k) plan for my company?
With this account, you can get a customizable plan, as well as tax advantages for your company.
➡️ In addition, employee contributions are higher than those offered by other plans, and you have the option of optional employer matching contributions.
✅ And for you, which plan best suits your needs? Remember, at Wave Tax we are here to advise you the best ways to save for the future.
📍Contact us at info@wavetax.us