FINANCIAL FOCUS® – Which retirement plan is right for your business?

This article was written by Edward Jones for use by Janet Marshall, your local Edward Jones Financial Advisor. She can be reached at 334-489-1071. Se habla Español

If you’re a local business owner, a workplace retirement plan can be a powerful tool – helping you manage taxes, strengthen employee retention and build personal financial security.

Many in your situation, however, assume retirement plans are complicated or only suitable for large companies. The reality is quite different. Today’s retirement plan options encompass businesses of every size, from solo entrepreneurs to companies with dozens of employees.

The key is understanding which plans work best for different kinds of businesses:

Self-employed individuals or businesses without employees. Three commonly used retirement plans:

• Simplified employee pension (SEP) plans are relatively straightforward, low-maintenance, lower-cost and flexible on how much you contribute each year.
• Owner-only 401(k) plans are ideal if you’re willing to accept additional cost and complexity in exchange for benefits like higher contribution limits and borrowing options.
• Owner‑only defined benefit plans work best for owners with high, steady income who want to maximize their retirement contributions and guaranteed retirement income. These plans come with required annual funding and greater administrative complexity.

Businesses with employees can also consider an SEP plan, although it only allows for employer contributions. Other plan options include:

• The SIMPLE IRA (savings incentive match plan for employees) can work well for companies with 100 or fewer employees seeking a low-maintenance option. Employer contributions are required, and it has lower contribution limits compared to other plan types.
• Traditional 401(k) plans offer maximum flexibility by allowing both employee salary deferrals and employer contributions that can be adjusted based on business performance. These plans have added costs and administrative responsibilities.
• Safe harbor 401(k) plans are ideal if you want to maximize your own retirement contributions without complex testing requirements and you’re willing to make required employer contributions.
• A cash balance plan is often paired with another plan type, such as a 401(k), to allow greater retirement savings. It works well when you have a smaller company with high-earning employees and consistent cash flow, and you’re comfortable making required contributions.

Each plan type involves different eligibility requirements, establishment deadlines, contribution limits, complexity and costs. In determining a workplace retirement plan that’s right for your business, you’ll want to consider your number of employees, desired contribution levels, comfort with required employer contributions and willingness to handle administrative responsibilities. And, of course, the goals for your business and your own retirement are important criteria.

Fortunately, you don’t have to navigate this decision alone. A financial advisor can help you evaluate the trade-offs among different plan types and select the option that best fits your situation. They can explain how various plans work and guide you through the setup process.

Starting a workplace retirement plan is an investment in your future, your business and your employees. With professional guidance, you can find a plan that helps everyone build financial security while positioning your business for continued success.