It’s estimated that Americans will need 70-90 percent of their pre-retirement income to maintain their current standard of living once they stop working, yet fewer than half have actually calculated how much they need to save.
Reality: As a small business owner who employs these U.S. workers, you can directly make an impact on helping them save. That’s why retirement plan options have become one of the more attractive benefits for the employees you’re trying to hire or keep around.
According to the Department of Labor, there are some significant tax advantages for offering retirement plans. They include:
- Employer contributions: Deductible from the employer’s income
- Employee contributions: Not taxed until distributed to the employee (aside from Roth contributions)
- Money in the plan: Grows either tax deferred or tax free, depending on how contributions are payroll deducted (pre-tax or post tax)
Additional Incentives for Establishing a Retirement Plan
The DOL put together this great list of other reasons your small business should consider offering a retirement plan:
High contribution limits make it easy for you and your employees to save large amounts of money
For employees ages 50 and over, “catch-up” rules apply. This just means they are able to set aside additional contributions. The amount may vary depending on the type of plan
Small employers can claim a credit for part of the ordinary and necessary costs of starting an SEP, SIMPLE or certain types of retirement plans. Here’s how this credit works: It equals 50 percent of the cost to set up and administer the plan up to a maximum of $500 per year for each of the first three years of the plan.
Certain low and moderate income employees who make contributions to their plans may also receive a tax credit. Called a “saver’s credit,” the amount is based on the contributions participants make and their credit rate. How this credit works: The maximum contribution eligible is $2,000 and the credit rate can range between 10 to 50 percent, depending on the participant’s gross income.
Additional way to save: There’s an option for a Roth program that can be added to a 401(k) plan that allows participants to make after-tax contributions into separate accounts.
Don’t forget: If your small business operates in California or Illinois, you are required to offer a retirement plan to employees. According to Philly.com, New Jersey is encouraging employee participation in retirement plans by establishing a state-run marketplace for small businesses to set up retirement accounts.
PrimePay Can Help.
PrimePay has a passion for retirement plans. We’re here to support small businesses by giving you the flexibility you need to offer retirement benefits to your employees.
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