While many people think of the 401(K) when they hear “retirement plan,” businesses have numerous factors and options to consider when choosing an employer sponsored retirement plan.
First, let’s consider WHY a business would want to offer a retirement plan for employees?
Employee Retention Tool: Employers can utilize a vesting schedule stretching over several years to improve employee longevity. For example, employees may be entitled to 20% of employer contributions after 2 yrs, 40% after 3 yrs, 60% after 4 yrs, 80% after 5 yrs & 100% after 6 yrs.
Recruiting Tool: Enhances overall benefits through a retirement plan and matching program attracts new talent and reward existing employees.
Tax Deductions: Businesses may deduct any employer matching contributions that are made to employees.
Tax Incentives: New employer sponsored plans receive a tax credit for $250 per non-highly compensated employee (NHCE)*.
There are plenty of options; all with unique characteristics and benefits. It is important to choose the one that best suits your organization’s needs. Start with your goals and work backwards. Are you trying to attract employees, save as much as possible for retirement before exiting, or shelter business income from taxes? Let us help you choose and design a plan tailored to your needs.
Overview of Qualified Retirement Plan Options
| Plan Types | Eligibility | 2021 Contribution Limits | Employer Matching | Vesting Period |
|---|---|---|---|---|
| 401(k) | Any Employer | $19,500 | Yes | Plan Determined |
| 403(b) | Public Education & Non-Profits | $19,500 | Yes | Plan Determined |
| Simple IRA | Less than 100 Employees | $13,500 | Yes | 100% Immediate |
| SEP IRA | Any Employer | 25% of wages up to $58,000 |
No – Employer Makes Contributions | 100% Immediate |
| 457(b) | Government & Tax Exempt Entities | $19,500 | Yes | Plan Determined |
| Defined Benefit | Any Employer | $230,000 | Employer Makes Contributions | Plan Determined |
*Those who make less than $130,000 and are not a 5% owner or greater at any point in the plan year.
Greenwood Capital is an SEC registered investment advisory firm. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on solely for tax, legal or accounting advice.
