No Excuses: It’s Time to Establish a Small Business Retirement Plan

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If you own a small business, then you’re used to “grabbing the bull by the horns” and getting things done yourself. This typically includes launching new products and markets, hiring new employees and setting a strategic vision and course for the company.

But there’s one important thing that many small business owners fail to do: plan for their own retirement. According to Capital One’s Spark Business Barometer, only about one out of 10 small employers sponsor a workplace retirement plan. However, eight out of 10 employees believe that a retirement savings plan is one of the most important benefits an employer can offer.

Think It’s Too Expensive? Think Again

At Frontier, we believe one reason many owners don’t offer a retirement plan is because they think the costs and regulatory burdens will make it too cumbersome and expensive. But this isn’t necessarily true: There are several low-cost, easy-to-administer options available that make it relatively easy for small business owners to not only save for their own retirement, but to help their employees save as well.

Here are three of the most common small business retirement plans:

  1. Simplified Employee Pension (SEP) plan — A SEP is a retirement plan specially designed for small firms and self-employed individuals. A wide range of different types of businesses may qualify to establish a SEP, including partnerships, LLCs, sole proprietorships, and C and S corporations.

IRAs are opened for the business owner and employees, into which the business makes tax-deductible contributions. (Employee contributions are not allowed with a SEP.) Funds grow tax-deferred and are 100 percent vested as soon as they’re contributed.

One of the biggest benefits of SEPs is their high contribution limit. In 2017, up to $54,000 or 25 percent of compensation (whichever is less) can be contributed to a SEP annually. You must contribute the same percentage of compensation to all SEP accounts, but you can change this percentage every year depending on how much the business can afford to contribute.

  1. SIMPLE IRA — These are similar to SEPs but with a couple of key differences. For example, employees are allowed to make contributions to SIMPLE IRAs, but the annual contribution limit is lower. In 2017, you and your employees can contribute up to $12,500, or $15,500 if you or an employee is age 50 or over.

Most companies with 100 or fewer employees and self-employed individuals are eligible to establish a SIMLE IRA. Contributions your business makes to SIMPLE IRA accounts are tax-deductible, while employee contributions are made on a salary-deferral basis. Like SEP contributions, SIMPLE IRA funds are 100 percent vested immediately so employees have access to all of their savings if they leave your company.

  1. SIMPLE 401(k) — Large businesses have sponsored 401(k) plans for decades, but the complex and costly recordkeeping and non-discrimination rules made it difficult for small employers to do the same. The SIMPLE 401(k) enables small businesses to also sponsor this popular retirement savings plan.

Like with traditional 401(k)s, your business has the option of matching employee (and your own) contributions on whatever percentage basis you desire. In 2017, the annual elective deferral limit — or in other words, the maximum amount of employee and employer matching contributions allowed — is $18,000, or $24,000 if you or an employee is age 50 or over.

You must file IRS Form 5500 annually if you sponsor a SIMPLE 401(k), and you can’t sponsor any other type of retirement plan. Each employee age 21 or over who has worked for your company for at least one year must be eligible to participate. Your business isn’t required to allow optional participant loans and hardship withdrawals, but you can if you want.

Get Started Now

If yours is among the vast majority of small businesses that doesn’t sponsor a retirement plan, what are you waiting for? Your retirement financial security and that of your employees may very well depend on it.

Contact us if you have more questions about these and other small business retirement plans. We can help you determine which type of plan would be best for you and your employees.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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