If you’re a small business owner and you don’t have an employee retirement plan, the clock is ticking…
Effective November 1, 2023, Illinois will require employers with 5-15 employees to have retirement plans as part of the Illinois Secure Choice Savings Program Act. If you missed the deadline for companies with 16-24 and 25+ employees, start planning today to prevent further fines and penalties.
As a small business owner, it can be challenging to manage day-to-day operations and do the research to find the best retirement plan to fit the needs of your employees and your company. The first step is understanding your retirement plan options and discovering the advantages and differences between them.
The Benefits of Retirement Plans for Employees and Businesses
- Recruitment Tool: Retirement plans offer numerous benefits to both employees and businesses by serving as a valuable tool for attracting and retaining talented employees. Implementing a retirement plan can give your business a competitive edge in recruitment, even if it’s a small company, as it enables the business to attract qualified employees who are eager to invest in their financial future to build a path toward a comfortable retirement.
- Tax Advantages: There are also tax advantages when offering a retirement plan, both for employees and employers. Employers can typically deduct contributions made to retirement plans, reducing the overall tax burden that can weigh down small businesses. Employees can make contributions to a retirement plan on a pre-tax basis, resulting in a decrease in their taxable year-end income.
- Avoid Penalties: In certain states like Illinois, employers with five or more employees are legally required to offer retirement plans by November 1, 2023. See if your state requires retirement plans at https://bit.ly/3Czt0qX.
Types of Retirement Plans
There are several types of retirement plans that small businesses can choose from, each with its own set of features and benefits depending on the size and needs of the company.
401(k) Plan: A 401(k) plan is one of the most common employer-sponsored retirement plans today. Employees can contribute a portion of their salary to the plan, and some employers may also provide matching contributions. There are ongoing administrative tasks and fees which may rule this option out for smaller businesses.
SIMPLE IRA: Savings Incentive Match Plan for Employees (SIMPLE) IRA is a plan offered by smaller employers in lieu of more complex and flexible 401(k) plans. In a SIMPLE IRA, the employee makes tax-deductible contributions to the plan, and an employer must make either matching contributions (up to 3% of the employee’s salary) or nonelective contributions.
Simplified Employee Pension (SEP) IRA: A Simplified Employee Pension (SEP) IRA is a straightforward way to contribute toward your own and your employees’ retirement accounts without introducing excessive administrative costs. Anyone who is a business owner with one or more employees can open a SEP-IRA. Employers make contributions on behalf of eligible employees and contributions are tax-deductible for employers.
When to Start
Assuming the clock is not ticking on meeting state-mandated retirement plan requirements, consider investigating your company’s retirement plan options three to six months before the desired implementation date. Take advantage of the time now to gather essential information, coordinate with payroll services, and address any logistical concerns so you and your employees are ready to begin at the start of 2024, which will provide a clean start for record-keeping.
Choose the Right Retirement Plan for Your Business
When choosing a plan, evaluate your business’s size, financial capabilities, and employees’ age, salary levels, and anticipated retirement goals. This assessment will help you understand the retirement plan features that will best suit your workforce and your company.
You should also determine the level of administrative complexity your company can handle as some plans require more administrative duties such as record-keeping, compliance, and reporting.
A financial professional can help you assess the options and make the right plan decision for your company. Additionally, investment professionals can provide educational resources to help both businesses and employees understand their retirement options and reach their goals.
Ready to start or just have questions about your company’s retirement plan? Email our team at info@anchorwm.com.
By Adam Ludwig