Business Retirement Plan Options
By Ralph Quintana
Retirement plan contributions made for yourself and your workers are generally tax deductible as a business expense. A Retirement plan may help you shelter more of your income from taxes to build wealth in addition to your business.
401(k) plan. Owners can often make larger contributions for themselves (as employee and employer) in exchange for making contributions or “matches” for employees.
The maximum employee contribution is $18,000 ($24,000 for those 50 and older) in 2016. The required match is a minimum 100% of each participant’s first 3% of salary plus 50% of the next 2% of salary, or a non-elective contribution equal to 3% of salary for all eligible employees. A profit-sharing contribution up to 100% of an employee’s compensation is allowed, up to a $53,000 cap (from both sources, not including catch-ups) in 2016.
Solo 401(k). Business owner with no employees can contribute up to the $18,000 employee limit ($24,000 for those 50 and older). As employer, the business can contribute an additional 20% of the owner’s compensation (25% if incorporated), up to the $53,000 cap.
SEP IRA (simplified employee pension). The same percentage of salary (up to 25% of compensation or $53,000) must be contributed to each eligible employee’s SEP IRA, including the owner’s. Self-employed individuals can contribute 20% of net earnings, up to $53,000 in 2016. One key aspect, business owner does not need to contribute every year.
SIMPLE IRA. Companies with 100 or fewer employees may use a SIMPLE IRA salary-reduction plan. The maximum employee contribution in 2016 is $12,500 ($15,500 for those 50 and older). The required match is 100% of the first 3% of participant contributions or 2% of all eligible employee salaries.
Can an employer have more than one kind of tax deductible plan? The answer is yes!! Please call to learn about how defined contribution and defined benefits plans can help increase salary deferral for the business owner and also how to attract and retain certain employees.
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