Why offer a retirement plan?
As a business owner, you’ve got a lot on your mind. You may have questions about offering a retirement plan to your employees. What does it cost? What are my options?
The good news is the Retirement Marketplace makes the process easy to choose an affordable plan that works for your business. Better yet, the plans offered here charge no administrative fees to you, the employer. That’s right – no employer fees!
When individuals have the option to participate in a retirement plan at work, they are 15 times more likely to save for retirement than if they were on their own. That’s important because employees who feel good about their finances have less stress and illness, thus reducing absenteeism.
Invest in a retirement plan for your business and you can:
Attract and retain talented people
Increase productivity and reduce turnover costs
Differentiate yourself from the competition
Make tax-deductible employer contributions
Recoup administrative costs to set up a plan with a Retirement Plans Startup Costs Tax Credit* Contact your tax advisor to see if you qualify
Retirement Plans Sponsored by Employers
Plans described below offer a high level overview of types of plans that may be sponsored by employers. These plans are subject to specific legal requirements and annual contribution limits.
Defined Benefit Plan
Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute (and therefore deduct) more each year than in defined contribution plans. However, defined benefit plans are often more complex and, thus, more costly to establish and maintain than other types of plans.
Learn more at https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-defined-benefit-plan
Defined Contribution Plan
Many employers today offer a defined contribution plan such as a 401(k) or a 403(b) plan. Here’s how they work:
- Contributions are deducted from your paycheck, in most cases on a pre-tax basis.
- Employers have the option to contribute to employees’ accounts.
- The money can be invested in stocks, bonds, mutual funds, or other investments.
- Your account is adjusted for earnings and losses.
- Distributions, including earnings, are counted as taxable income at retirement.
- Plan terms determine when withdrawals may be made. Possible withdrawal penalty for withdrawals before age 59 ½ .
Learn more at https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview and https://www.irs.gov/retirement-plans/irc-403b-tax-sheltered-annuity-plans
Roth 401(k)/403(b)
This is a relatively new option that plan sponsors may adopt in their defined contribution plans. Under these plans, contributions are made from after-tax dollars and grow tax free. Contribution limits are higher than the Roth Individual Retirement Account (IRA), but cannot exceed the normal 401(k)/403(b) plan contribution limit.
Learn more at https://www.irs.gov/pub/irs-pdf/p4530.pdf
Profit-Sharing Plan
A profit-sharing plan allows for discretionary employer contributions only. There is no set contribution amount and it can vary year to year. Also, your business does not need profits to make contributions to a profit-sharing plan. If contributions are made, a set formula for determining how the contributions are divided must be in place.
Learn more at https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-profit-sharing-plan
Payroll Deduction IRA
Under a Payroll Deduction IRA, employees establish an IRA (either a Traditional or Roth) with a financial institution and authorize a payroll deduction amount for it. A business of any size, even if you’re self-employed, can establish this type of plan. Payroll Deduction IRAs are good starter plans that encourage savings by employees before earnings go toward day-to-day expenses.
Learn more at www.irs.gov/retirement-plans/plan-sponsor/payroll-deduction-ira
SIMPLE IRA
A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or non-elective contributions. Contributions are made to an Individual Retirement Account or Annuity (IRA) set up for each employee.
Learn more at www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans
How Do I Reduce My Administrative Costs?
Get a tax credit for 50% of your eligible startup costs. Learn more about the Retirement Plans Startup Costs Tax Credit at: https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
Retirement Plans For Self-Employed Individuals
Self-employed individuals have the ability to save for retirement on a tax-deferred basis as well. Plans described below offer a high level overview of types of plans that may be available to self-employed individuals. These plans are subject to specific legal requirements and annual contribution limits.
Solo 401(k)
A Solo 401(k) is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan. The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities.
Learn more at https://www.irs.gov/retirement-plans/one-participant-401k-plans
Simplified Employee Pension (SEP IRA)
A SEP IRA provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings. Contributions are made to an Individual Retirement Account or Annuity (IRA) set up for each plan participant (a SEP-IRA). A SEP-IRA account is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRAs.
Learn more at https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep
Savings Incentive Match Plan for Employees (SIMPLE IRA)
A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or nonelective contributions. Contributions are made to an IRA set up for each employee.
Learn more at https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan
Retirement Plans for Individuals
Of course, in addition to the types of plans listed above, self-employed people can also consider Individual Retirement Accounts (IRAs). More information about IRAs is in the section called About Individual Retirement Accounts (IRAs).
Learn more about self-employed retirement calculations at www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction
Retirement Plan Information for Tax-Exempt Organizations
Nonprofit organizations can benefit from offering a retirement plans available. A variety of plans are available to tax-exempt organizations, including 401(k), 403(b), 457(b), payroll deduction IRA, SIMPLE IRA, and SEP plans. Offering this type of benefit can be a powerful tool for obtaining and retaining sought-after talent.
Learn more at https://www.irs.gov/charities-non-profits/retirement-plan-information-for-tax-exempt-organizations, specifically the first link to IRS Publication 4484
Resources for Employers
Retirement Plans Comparison
Review and compare features of different types of retirement plans.
Retirement Plan Resources
Resources for small business retirement plans.
Tax Credit
Get details about the Retirement Plans Startup Costs Tax Credit.
Employer Responsibilities and Options
No matter the size of your business, learn about your responsibilities and options when it comes to retirement plans.
Small Business Retirement Options
Sort through your options and find a retirement plan for yourself and your employees.
Workplace Financial Wellness
Make financial wellness a cornerstone of your company culture.
CONTACT US:
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The Small Business Retirement Marketplace is administered by the Washington Department of Commerce as established in RCW Chapter 43.330.730-750. Plans carried on the Retirement Marketplace are verified by the Department of Financial Institutions and/or the Office of the Insurance Commissioner to meet the requirements set forth in RCW 43.330.732(7) and 735(6)(a).
Enrollment in plans on the Retirement Marketplace is voluntary. Plan enrollment is managed by private financial services firms. Saving through certain plans will not be appropriate for all individuals. Employer facilitation of most retirement savings plans carries certain legal obligations for which employers are entirely responsible. Contributing to a retirement savings plan may offer tax benefits and/or consequences. Other private sector plans not offered on the Retirement Marketplace may charge lower fees. Consult your tax or financial adviser with questions related to investments.
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