Choosing
a Retirement Plan That Works For You, Your Business and Your Employees
by
Denise Mongiello
The secret to retiring successfully can be summed up in one word – planning. Essentially, that means planning early, planning sensibly and planning knowledgeably. There are a number of effective ways for business owners, professionals and their employees to save for the future – with many retirement plan alternatives from which to choose.
Whether you are considering adopting a retirement plan for the first time or evaluating an existing one, it's important that you understand your options.
What Are Your Options?
In general, there are two types of retirement plans – defined benefit
and defined contribution plans.
With a defined contribution plan, benefits depend upon the level of contributions made and investment performance. Employees’ benefits are based on the amount of assets in their individual accounts at retirement. The plan may be structured so that each plan participant takes on the investment risk of his/her own account. Some of the plans available include simplified employee pension plans (SEPs), profit sharing plans, 401(k) plans, and savings incentive match plans for employees (SIMPLEs). Let’s take a look at each of these plans.
A SEP is for business owners seeking a flexible, low-cost retirement plan that is easy to establish and maintain. With the SEP, each eligible employee sets up an individual retirement account (IRA) into which the employer makes contributions. Since the employees each have their own individual accounts, they bear the investment risk. This plan may be especially suitable for new businesses or companies with cyclical profit histories since the employer can vary the amount to be contributed from year-to-year – or even choose not to contribute at all in less profitable years.
For employers who want their employees to share in the funding of their retirement plan, a 401(k) plan may be a viable choice. A 401(k) is a form of profit sharing plan that allows employees to contribute pre-tax dollars through a salary reduction agreement. In addition, the employer may choose to make matching and/or discretionary contributions on a tax-deductible basis. Before adopting a 401(k) plan, the employer should first consider the administrative requirements and any additional administrative costs that may be incurred with this type of plan.
A SIMPLE is for businesses that have 100 or fewer employees and do not currently contribute to a retirement plan. It enables a business owner to establish a 401(k)-type savings plan without the typical costs and complexities associated with a traditional 401(k). A SIMPLE plan can be established either as an IRA or as a 401(k) plan. Employees can elect to contribute pre-tax dollars through a salary reduction agreement. In addition, the employer is required to make contributions each year under one of two formulas.
Where To Get Help
Providing sufficient retirement income for you and your employees at
a reasonable cost to your business requires careful planning and investing.
Whether you want to establish a retirement plan for the first time
or have your existing plan evaluated, a financial advisor can consult
with you to help you identify investment alternatives best suited to
your needs and those of your plan and your employees.
Denise M. Mongiello is a Financial Advisor of Investments in Newport Beach and Palm Desert, California with UBS Financial Services. She began her career in the financial industry with Wells Fargo in 1993. Denise's approach to investing is to thoroughly understand her clients investment objectives, time horizon and risk tolerance. She resides in Newport Beach. For more information please contact Denise at 949-467-6034.