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As an employer, you may wish to establish one or more retirement plans, which can provide significant benefits for you and your employees. There are many different types of retirement plans; however, choosing the right one for your situation is a critical decision. You want a plan that will meet both your goals as the employer and the needs of any employees. In addition, it is important to balance the cost of establishing and maintaining a plan against the potential benefits.
Retirement plans are usually IRA-based (SEPs and SIMPLE IRAs) or "qualified&quo (401(k)s, profit-sharing, and defined benefit). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific rules and regulations in order to maintain their tax-deferred status.
You will need to define your goals clearly before attempting to choose a plan. Ask yourself the following questions about what you want the plan to do:
1. To maximize the amount you can save for your own retirement?
2. A plan funded by employer contributions? By employee contributions? Both?
3. A plan that allows you and your employees to make pretax and/or Roth contributions?
4. The ability to structure the vesting (ownership) schedule for employer contribution?
5. The flexibility to skip employer contributions in some years?
6. A plan with the lowest cost? Easiest administration?
7. The ability to borrow against your account balance?
The answers to these questions can help guide you to the plan(s) most appropriate for your business.
Leslie Thompson, CFA, CDFA, CPA
Spectrum Management Group