Finding the right retirement plan

If you are self-employed or own a business, you have several options for establishing a retirement plan for yourself and/or your employees. Selecting the right plan can help attract, reward and retain valuable employees and can help improve productivity. Qualified plans (and some nonqualified plans) can provide significant tax advantages for the employer and the employee. Such benefits include a tax deduction for contributions to the retirement savings plan or tax deferral until funds are distributed from the plan at a later time. And of course, there is the personal benefit of promoting regular savings for the future.

The challenge is finding the right plan to fit your business and personal needs and the needs of your employees. There are many different types of retirement plans. Even after you chose the right type, you’ll need to make decisions about eligibility criteria, the vesting schedule and other options that may be available, depending on the type of retirement plan that you’ve chosen. Although it is wise to have a detailed conversation with your professional Financial Advisor who has many resources available to help with your decisions, here are some ideas to help you get started.

Retirement plans for self-employed/sole proprietorship/partnership

There are several types of retirement plans that are specifically designed for the self-employed and for small businesses. Consider one of the following types of plans: Payroll deduction IRA plan, Simplified employee pension (SEP) planm SIMPLE IRA plan, SIMPLE 401(k) plan, and Individual 401(k) plan.

Retirement plans for corporations

If your business is a corporation and you have multiple employees, there are many types of plans that will help you balance the needs of your business and the needs of your employees. Your options include the following types of plans:

Payroll deduction IRA plan, Simplified employee pension (SEP) plan, SIMPLE IRA plan, SIMPLE 401(k) plan, 401(k) plan, Profit-sharing plan, Money purchase pension plan, Age-weighted profit-sharing plan, New comparability plan, Thrift/savings plan, Defined benefit plan, Target benefit plan, Cash balance plan, and Employee stock ownership plan (ESOP).

Nonqualified deferred compensation plans

Depending on your situation, you could consider a nonqualified deferred compensation plan. These plans are typically more flexible than qualified plans because the IRS and Department of Labor requirements are usually less stringent for nonqualified plans. For example, while most qualified plans place limits on employer contributions, many nonqualified plans have no such limits. The chief disadvantage of such plans is that they typically are less beneficial from a tax perspective, they are usually offered to only a select group of employees, and plan assets are not protected in the event that the employer files bankruptcy. For these reasons, most employers choose qualified plans. But it’s important to consider nonqualified plans to supplement a qualified plan or in the event that it makes more sense to use a nonqualified plan to satisfy your unique business needs.

Stock plans

There are several variations of a stock plan. These includes employee stock ownership plans (ESOPs), restricted stock, stock option plans, employee stock purchase plans (ESPPs) and stock appreciation rights (SARs). Some plans provide employees with company stock as a form of compensation. Other plans provide stock or cash where the amount is based on the performance of the company’s stock.

Review and Revise your Retirement Plan Periodically

Each type of retirement plan has unique features that may be appropriate for some employers, but not for others. Your professional financial advisor can help you choose the plan that will work best for you and your business needs. Over time, as your business, the economy and tax laws change, review your business’s retirement plan. Your advisor can help you keep current when new laws impact your retirement plan or when trends change and you wish to keep your plan competitive with other employers. Your advisor can help you understand all the various features and help make sure you are fully taking advantage of your options.

Clare Schwemlein works for Janney Montgomery Scott LLC in Chillicothe.