Good retirement plans are often hallmarks of great employers, but finding a good one and setting it up can be a complex endeavor.
But, according to Robert D. Coode, principal and registered representative at Skoda Minotti, there is a plan out there for every company. It may take some time and effort to find one, but once you do, it can be well worth the effort.
“Creating and maintaining a retirement plan benefits both the business owners and the employees,” says Coode.
Smart Business spoke with Coode about how to determine what type of plan is right for your company.
How does creating and maintaining a retirement plan benefit a business owner?
A good retirement plan can help you attract and retain quality employees. In addition, a retirement plan gives both the employee and employer ability to defer income in a tax favorable vehicle.
The tax advantages associated with retirement plans are key. Contributions made to the retirement plan are deductible when deposited and grow from there on a tax deferred basis.
On a side note, employees today get confused between a benefit and an entitlement. A retirement plan is not an entitlement; it is a benefit. That is important to state, and it needs to be expressed to the employees.
What types of plans are out there?
Once you decide to implement a retirement plan, you need to educate yourself about the types of plans that are available. Generally, most people don’t understand the variety of plans out there.
Most plans are either IRA-based or ‘Qualified’ in nature. An example of an IRA-based plan would be a SEP plan (simplified employee pension). Another is SIMPLE (savings incentive match plan for employees).
On the flip side, common examples of a qualified plan would be a profit sharing plan, a 401(k) or a cash balance plan.
Each plan has its own set of advantages and disadvantages, which really depend on the business owners’ situation. There is no one size fits all — just because you have a 10-person group doesn’t mean you automatically fit into a basic IRA plan, for example.
Generally, qualified plans are more complex to set up and more costly to run than IRA-based plans.
The type of plan chosen will have an impact on the maximum amount someone can defer into the plan on an annual basis. While there are many variables, an example of this would be that the deferral limits into a 401(k) plan are much greater than those into a SIMPLE IRA.