Small businesses are looking to attract long term employees. One way is by offering attractable benefits such as health, paid time off, and retirement benefits. When looking at Business Retirement Planning options business owners often get overwhelmed by the choices. A key benefit for them to opt for retirement benefits are the tax advantages. Below are 5 retirement planning options for small businesses.

Traditional 401(k)

The Traditional 401(k) plan is possibly the most used retirement planning option in small businesses. It provides the most flexibility of the plans. Generally these are set up with an array of mutual fund options. This allows business owners as well as employees to make tax-deferred contributions consistently during the employee’s career.

Employees decide how much they will contribute from their salary. The employer may match contributions as well. Any participants over the age of 50 can contribute an additional $5,500 into the plan. The combination of employee and employer contributions for 2013 was $51,000 with a $17,500 limit on employees for 2013. There are a few options on how to manage this Business Retirement Planning option including loans, hardship and early withdrawals, educational programs, and investment management options.

Automatic Enrollment 401(k)

This plan is very similar to the Traditional 401(k) plan. The difference is the employee is automatically opted into the plan. The contribution percentage is pre-defined by the employer. The employer can contribute as well. The employee has access to the funds as normal and can increase or decrease their contribution. They may opt out of the plan if they’d like. The major benefit to small business owners are higher participation levels increasing the yearly tax deductible expense.

Savings Incentive Match Plan for Employees (SIMPLE) – IRA

The Simple IRA plan is a Business Retirement Planning option geared towards small businesses with fewer than 100 employees. This plan is optional for employees to participate in. If they participate the eligible maximum amount towards contribution in 2013 was $12,000. If 50 years of age or older the maximum was $14,500.

The employer must either match dollar for dollar of the employee’s contribution up to 3 percent or they can make a 2 percent fixed contribution of the employee’s compensation. This plan can be set up automatically as well and an employee can choose to opt out of the plan. The employee is vested immediately in this plan. The major benefit towards small business owners is its tax deductible expense.

Profit Sharing

This Business Retirement Planning option allows an employer to make a large contribution for the employee. There is not set amount they have to participate for, but the limit for 2013 was $51,000. There are a few direct benefits towards a small business owner.

First it has a low administration cost. Second, it is an allowable business deduction. So those contributions aren’t taxed until they are disbursed. Small business owners can defer the $51,000 to their own 401(k) account which is more than the $17,500 employee contribution limit. Finally it’s a flexible plan. It’s discretionary and can vary year to year. If the business is having financial issues, they can reduce the profit sharing contribution.

Defined Benefit

This plan is a pre-defined and fixed benefit for employees. This is generally funded by the employer. The employee is vested over a time period. This Business Retirement Planning option is beneficial to a business in that they can contribute and therefore deduct more each year than the defined contribution plans. It’s beneficial to an employee because they have more benefits to look forward to at retirement per their employers’ contribution and not their own.

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