Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
The right plan for your business may reduce your current tax obligations and enable you to build personal wealth while attracting and retaining talented employees.
Establishing and maintaining a retirement plan doesn’t have to be complicated. While many small-business owners put off establishing a retirement plan because of cost or complexity, the process is easier and more cost-effective than you might think.
You should work with your financial adviser and tax professional to establish or update a plan that provides the flexibility you want for your business, rewards employees and helps you build personal wealth.
Here is a brief overview of some of the most popular plans for small business. Each plan option has different requirements and offers varied benefits, so choose the plan that is right for you and your business. Also, keep in mind that as your business grows and evolves, you can change your retirement plan.
The Savings Incentive Match Plan for Employees (SIMPLE) IRA may be a good choice as a first retirement savings plan if you want to offer employee salary deferral contributions and if your business has 100 or fewer employees.
The SIMPLE IRA tends to be a less complex and generally more affordable way to offer retirement benefits to employees since it is not subject to many of the administrative costs and filing requirements associated with other types of retirement plans.
Eligible employees may contribute up to $10,500 each year through payroll deductions that may reduce their taxable income. Employees age 50 and older may be eligible to contribute additional ‘catch up’ contributions of up to $2,500.
With a SIMPLE IRA, you will be required to make annual contributions of a non-elective two percent contribution for each eligible employee, regardless of participation, or a matching contribution of up to three percent of each participating employee’s compensation.
Although employer contributions are generally tax deductible, you may have concerns about ongoing financial commitments in an uncertain economic climate. If that is the case, a convenient alternative for you may be the Simplified Employee Pension (SEP) IRA plan.
A SEP-IRA plan may be particularly suitable for your business if your company’s profits vary from year to year or if you are looking for flexibility to change the contribution each year. Employers can make annual contributions that are generally tax-deductible for each eligible employee up to the lesser of $46,000 or 25 percent of a maximum of $230,000.
However, as the employer, you are not required to contribute in any given year and thus can change your contributions based on the performance of your business.
SIMPLE and SEP plans have become even more appealing to small-business owners due to the tax credit created by the Economic Growth and Tax Relief Reconciliation Act of 2001. Generally, if you have 100 or fewer employees and establish a SEP or SIMPLE plan, you may be eligible for a non-refundable income tax credit equal to 50 percent of up to the first $1,000 of certain plan administrative and retirement education expenses for each of the first three years of the plan.
Profit-sharing plans are also a popular way to offer employees retirement benefits if you are concerned about your business’s cash flow.
Although administrative costs may be higher, there may be additional benefits. A profit-sharing plan can be established for businesses of any size and provides for flexibility in annual employer contributions. You decide how much you want to contribute, or if you are able to contribute at all.
If you do contribute, you set the percentage of each participant’s compensation to contribute to the plan each year. Your contribution generally may be used as a business tax deduction. Profit-sharing plans are subject to compliance testing and IRS Form 5500 filing.
One of the most popular types of employee benefit plans is the 401(k) plan. Employees may reduce taxable income by making salary deferral contributions while controlling how their retirement savings are invested.
Employer contributions are optional and can be made either through employer matching or profit sharing contributions and are generally tax deductible. The new tax law has made the 401(k) plan, along with other retirement plans, even more attractive by increasing annual contribution limits. 401(k) plans are subject to compliance testing and IRS Form 5500 filing.
Defined benefit plans were popular among large corporations during the 1980s and have since been replaced by more affordable large-scale plans. However, they are often an ideal solution for small-business owners, especially those approaching retirement.
With a defined benefit plan, you may be able to make substantial contributions to quickly build a retirement nest egg.
There are drawbacks to defined benefit plans, especially for younger employees. Firstly, since they have longer to save for retirement, their contribution limits are lower than more senior employees. Also, contributions are not optional, and if you can’t pay your contributions, you’ll have to change plans.
In addition, defined benefit plans have several filing requirements including IRS Form 5500 and Pension Benefit Guaranty Corp. (PBGC) reporting requirements and premium payments.
Even if you do not want to formally adopt or sponsor a retirement plan, you can provide a simple and direct way for employees to contribute to their IRA through payroll deduction.
Though not an employer-sponsored retirement plan, this retirement savings vehicle gives your employees the opportunity to contribute up to $5,000 to their IRA. Employees age 50 and older may be eligible to contribute additional ‘catch up’ contributions of up to $1,000.
Regardless of which retirement plan you choose, be sure to communicate with your employees to increase the likelihood of their participation. Make sure participants have a current copy of the summary plan description and all other documentation required by law.
Over time, your business needs will grow and change. With your financial and tax advisers, review your revenue stream from the past several years, as well as your future business plans, to determine if your retirement plan still complements your business needs and goals.
