While you’re working long and hard to expand your business, shouldn’t your money be working just as hard to provide you with a secure retirement? And what about your employees? You need to create a retirement plan that serves the needs of your entire company.
Choosing the Right Plan
There are many types of retirement plans to choose from. The best retirement plan for your business depends on how your company is organized–whether it’s a proprietorship, partnership, or corporation. When it comes to choosing a plan, there’s no right or wrong answer. Instead, think about how you’d like to fund the plan, how much you and your employees want to contribute, how much you will be required to contribute for employees, and whether you want to take on some of the bookkeeping tasks yourself in order to reduce costs and increase your choices.
Types of Plans
Employer-sponsored retirement plans can be employer funded, funded by contributions from both employers and employees, or entirely employee funded. They generally fall into two categories:
Qualified plans adhere to IRS regulations about eligibility, employer contributions, employee withdrawals, and withdrawal tax consequences. A company must also meet strict federal rules for nondiscrimination to ensure that the plan benefits almost all employees.
If a company and its plan meet these provisions, the company can deduct contributions it makes to the plan; if it fails to meet them, the company risks losing its tax benefits for that year’s contributions. The company may have to file a separate tax return for the plans. Qualified plans are protected by law, so business creditors cannot access the funds to collect debts. Lake Norman Benefits, Inc and it’s network of tax and legal experts can help ensure you have the best plans and the most choice for you and your employees while minimizing the risks associated with such plans.
401(K): A Plan for the Future
401(k) plans help make saving for retirement easy and convenient while providing tax benefits to employers and employees. These employer-sponsored qualified retirement plans let eligible employees contribute a percentage of their pre-tax income directly from their paychecks. Current taxable income is reduced and investments grow tax deferred.
Non-Qualified Executive Benefit Plans
Non-Qualified Executive Benefit Plans are plans which allow an employer to decide which employees receive retirement benefits and how much. They are much more flexible than qualified plans, since rules for contributions and nondiscrimination are not as strict but they provide less immediate tax advantages. They may provide for retirement or deferred compensation benefits or supplemental benefits beyond those from the company’s qualified plans.
Non-qualified plans are much more flexible, since rules for contributions, limitations, and nondiscrimination are not as strict. Non-qualified plans let a business decide which employees get retirement benefits and how much they get, so they are usually used as executive compensation. They may provide for retirement or deferred compensation benefits or supplemental benefits beyond those from the company’s qualified retirement plans.
Although there are no restrictions and reporting requirements with non-qualified plans, they also don’t provide tax advantages, such as deducting contributions. The business can, however, take a deduction in the tax year in which owners or employees take a distribution or when the business segregates the retirement money to pay employees. If benefits are payable upon retirement or termination of employment, they are generally subject to ERISA’s participation, vesting, funding, disclosure, and reporting requirements, unless specifically exempted.