Attract and retain employees with retirement benefits
Finding – and retaining – talented employees is one of the biggest challenges facing small business owners today. A great way to attract the right people and get them to stay long-term is by offering a retirement benefits. There are many different options when it comes to choosing the right kind of account for your business, so in this post we’ve chosen to highlight three types that are very frequently used by businesses around the country.
3 Common Types of Retirement Accounts:
Simple IRA
- Employees: 100 or fewer
- Eligibility: Employee must have earned at least $5,000 in any two prior years and be expected to earn at least $5,000 in the current year
- Maximum Deferral: 2018 IRS limits are $12,500 if under age 50; $15,500 if age 50 or older; up to 100% of compensation
- Early Withdrawal Penalty: If a participant makes a withdrawal before he or she attains age 59 ½, generally a 10% additional tax applies. If this withdrawal occurs within the first 2 years of participation, the 10% tax is increased to 25%
- Excludible Employees: Employees who have not earned at least $5,000 in any two prior years or who are not expected to earn at least $5,000 in the current year
- Loans Allowed: No
- Federal Filing Requirements on Employer: Generally none
SEP IRA
- Employees: No restriction on number of employees
- Eligibility: Employees must earn $600 or more
- Maximum Deferral: Employees can’t defer. Employer can contribute up to 25% of compensation; annual max $55,000 (2018 IRS limit).
- Early Withdrawal Penalty: 10% for distributions that occur before age 59 ½
- Excludible Employees: Employees who have not earned $600 in three of the last five years
- Loans Allowed: No
- Federal Filing Requirements on Employer: Generally none
Traditional 401k
- Employees: No restriction on number of employees
- Eligibility: Employees must work 1,000 hours or more during the year
- Maximum Deferral: 2018 IRS limits are $18,500 if under age 50; $24,500 if age 50 or older; up to 100% of compensation
- Early Withdrawal Penalty: 10% for distributions that occur before age 59 ½. (This penalty is inapplicable if you are 55 or older and separate from your company after turning 55).
- Excludible Employees: Employees with less than one year of service; employees who work less than 1,000 hours during the year
- Loans Allowed: Yes
- Federal Filing Requirements on Employer: Form 5500 must be filed annually
As you can see, there are some significant differences between these types of accounts. Every business has unique needs and desires when it comes to providing retirement benefits, and the decision is best made with the help of experienced professionals.