Lots of Benefits - when you set up an employee retirement plan
The route to retirement security is the right retirement plan. We’ll help you along the way!
Did You Know...
- that retirement can last for 30 years or more?
- you might need up to 80% of your current annual income to retire comfortably?
- the average monthly benefit paid by the Social Security Administration is $1,200?
Why should you set up a retirement plan, and what are some of the benefits?
A retirement plan has lots of benefits for you, your business and your employees. Retirement plans allow you to invest now for financial security when you and your employees retire. As a bonus, you and your employees get significant tax advantages and other incentives.
- Employer contributions are tax-deductible.
- Assets in the plan grow tax-free.
- Flexible plan options are available.
- Tax credits and other incentives for starting a plan may reduce costs.
- A retirement plan can attract and retain better employees, reducing new employee training costs.
- Employee contributions can reduce current taxable income.
- Contributions and investment gains are not taxed until distributed.
- Contributions are easy to make through payroll deductions.
- Compounding interest over time allows small regular contributions to grow to significant retirement savings.
- Retirement assets can be carried from one employer to another.
- Saver’s Credit is available.
- Employee has an opportunity to improve financial security in retirement.
Future retirement savings value
Monthly Savings, 6%
What are the first steps to learning about and setting up a retirement plan?
A good place to start is by contacting a tax professional familiar with retirement plans or a financial institution that offers retirement plans. Helpful reading materials and IRS websites are listed at the end of this page.
What are the stages of sponsoring a retirement plan?
Sponsoring a retirement plan has four stages: Choosing, Establishing, Operating, and Terminating the plan.
You begin by:
- thinking ahead toward retirement in general; and
- learning about the specific ways that money can be put aside for your and your employees’ retirement, including types of tax-qualified retirement plans.
You take the necessary steps to put your plan in place. Depending on the type of plan you choose, the administrative steps may include:
- adopting a written plan;
- arranging a fund for the plan’s assets;
- notifying eligible employees about the terms of the plan; and
- developing a recordkeeping system.
You want to operate your retirement plan so that the assets in the plan continue to grow and the tax-benefits of the plan are preserved. The ongoing steps you need to take to operate your plan may vary depending on the type of plan you establish. Your basic steps will include:
- covering eligible employees;
- making contributions;
- keeping the plan up-to-date with retirement plan laws;
- managing the plan assets;
- providing information to employees participating in the plan; and
- distributing benefits.
When your plan no longer suits your business, you will close out the plan and notify the appropriate parties.
You may want to discuss these four stages with a tax professional familiar with retirement plans or a financial institution that offers retirement plans.
What resources are available on retirement plans?
- Types of Plans
Starting and maintaining specific types of retirement plans
- Publication 560
Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
- Publication 590
Individual Retirement Arrangements (IRAs)
- Publication 3998
Choosing a Retirement Solution for Your Small Business
- Publication 4118
Lots of Benefits when you set up an employee retirement plan
- Publication 4222
401(k) Plans for Small Businesses
- Publication 4333
SEP Retirement Plans for Small Businesses
- Publication 4334
SIMPLE IRA Plans for Small Businesses
- Publication 4587
Payroll Deduction IRAs for Small Businesses