For Mark Roberts’ Use: If you’re a small business owner, you probably know that attracting and retaining the best workers in your industry can be a challenge. The Affordable Care Act encouraged business owners to provide health insurance to employees, and many business owners have found that offering this benefit helps to promote a healthier and happier workplace. Another option which would help you compete for the best workers is the addition of a retirement plan for your employees.
Generally speaking, you’re allowed to auto-enroll your employees in an employer-sponsored retirement plan. A set percentage of their pay is diverted into a retirement account unless workers opt out or change their own contribution rates. Compare the following retirement plan options to find the one that best suits the needs of your workers and your company.
Safe Harbor 401(k). This plan is designed for small businesses, and can be more flexible than the 401(k) plans typically offered by larger companies. In exchange for making tax-deductible contributions for employees, you may be able to make larger contributions to your own retirement plan (as an employee and employer).
In 2014 the maximum employee contribution is $17,500, or $23,000 for workers aged 50 and older. To match employee contributions (a requirement of the plan), you must contribute 100 percent of the first 3 percent of deferred salary, plus 50 percent of the next 2 percent of deferred salary. Alternatively, you may make a non-elective contribution of 3 percent of salary for each eligible employee. The employer match, profit share, and total contributions cannot exceed 100 percent of an employee’s compensation, or $52,000.
SIMPLE IRA. If you have 100 or fewer employees, you may use a SIMPLE IRA salary-reduction plan. One advantage of this plan is that it requires little to no paperwork so long as employees do not have another retirement plan. For 2014, the maximum employee contribution is $12,000, or $14,500 for those aged 50 and older. Your required match is 100 percent of the first 3 percent of employee contributions, or 2 percent of all eligible employee salaries.
As with other employer-sponsored retirement plans, distributions are taxed as ordinary income, and withdrawals prior to age 59 ½ may be subject to income tax penalties. If you do decide to offer a retirement plan to your employees, you may find it helpful to schedule an optional seminar to help them understand their benefits and responsibilities.