Guideline for Choosing a Retirement Plan for Your Business

January 8, 2013

Small businesses, and their owners, have many retirement plan options. Choosing the right plan, or combination of plans, can be helpful as part of running the business and helpful to the owner for his or her retirement planning. The rules can get complex and you should consult with a retirement plan professional as part of the decision making process. This guideline provides some basic information and can help make the discussions with the professional more effective.

Why have a plan?
For the owner, a qualified retirement plan can be an advantageous way to accumulate wealth. Contributions to the plan can be tax-deductible, earnings within the plan are tax-deferred and there can be flexible ways to take distributions from the plan.

For the business, providing a retirement plan can be a part of the total employee compensation package. The right plan can help attract, retain and motivate your employees.

How much does it have to cost?
Your cost for a retirement plan will take two forms – company contributions to the plan on behalf of employees and yourself and the cost of establishing and administering the plan. The chart below describes some of the funding features of different types of plans. Choosing a plan that allows for employee deferrals without requiring significant company contributions may the option that provides the best of two worlds – permits the accumulation of larger amounts of money and keeps the company cost low.

The administrative costs of plans vary. Some plans are as simple as employees having IRA accounts to receive contributions, while others require annual IRS filings and audits. Contact a member of the Home Federal Trust & Asset Management Team for options and details.

How much responsibility do you as the manager want?
Once money is contributed to a plan, it must be managed and someone must make the investment decisions. This may mean the trustee of the plan must make investment decisions (or choose investment managers) or having a plan that enables each participant to manage their own funds. More and more plans are going this self-directed route.

Brief summary of plan types
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Summary
The right retirement plan can serve many purposes. Be sure to investigate all the possibilities to make sure your plan accomplishes what you want. The services of a qualified retirement plan specialist can be very valuable in reviewing your options. Contact the Home Federal Trust & Asset Management Team to get started.

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