Our Planters Bank Trust Services team can help you with your Small Business retirement planning. The following retirement savings options are provided through our Trust Services.
In all mentions of federal tax deductibility and/or tax implications within this section, please seek qualified tax advisem*nt.
SEP-IRA
A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners. When establishing a SEP-IRA Plan for your business, you and any eligible employees setup a separate SEP-IRA. Employer contributions are then made into each eligible employee’s SEP-IRA.
Plan Eligibility
You can establish a SEP-IRA Plan if you:
- Are a sole proprietor, in a partnership or are a business owner (of either an unincorporated or incorporated business, including Subchapter S Corporations).
- Earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at another business where you are employed or if you have funds within any qualified retirement program.
Tax Advantages
- Tax-deductible contributions up to 25% of your individual compensation.
- Tax-deferred growth with any SEP-IRA qualified investment until withdrawal. However, you will be subject to pay a federal tax penalty for withdrawing any of your SEP-IRA money before retirement.
Contribution Flexibility
No annual contribution is required.
- Contribution percentage can vary each year, from 0% to 25% of compensation.
- The employer must make all SEP-IRA contributions, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer.
SIMPLE IRA
A SIMPLE IRA Plan allows you and your employees to make contributions to SIMPLE IRAs. Contributions can be made via elective deferral (employee) and matching or non-elective contributions (employer). Employer contributions are tax-deductible and employee contributions are excluded from income for federal income tax purposes.
Plan Eligibility
You can establish a SIMPLE IRA if you are:
- A sole proprietor, partnership, limited liability corporation (LLC) or incorporated business (including Subchapter S Corporation with 100 or fewer employees).
- An eligible employee who has:
- Received at least $5,000 compensation from the employer during any two years preceding the current calendar year and is reasonably expected to receive at least $5,000 in compensation from the employer in the current calendar year.
Tax Advantages
- Employer contributions are tax deductible for the employer.
- Employee elective deferrals are excluded from the employee’s income for federal income tax purposes.
- Any investment and/or interest earnings within a SIMPLE IRA are tax-deferred until withdrawn. However, you will be subject to pay a federal tax penalty for withdrawing any of your SIMPLE IRA money before retirement.
Contribution Flexibility
- The employer may elect a matching contribution formula or a non-elective formula of 2% of compensation for all eligible employees.
- If a matching formula is elected: The employer must match the employee’s elective deferrals up to 3% of the employee’s compensation for the year.
- An employer can choose different alternatives for each year. Examples:
- A 3% employer match can be reduced to a minimum of 1%.
- The employer cannot choose a percentage less than 3% for more than 2 years during a 5- year period that ends with and includes the year for which the choice is effective.
- The employer may choose the non-elective formula of 2% of all eligible participants’ compensation. Under this formula, all eligible employees would receive this non-elective contribution whether making elective deferral contributions or not.
Contact a Planters Trust Services team member to find out more about Small Business Retirement Plan options … and how you can gain tax savings and long-term retirement benefits for you and your employees.
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FAQs
Most Common Retirement Plans for Small Business Owners
The most common retirement plans for the self-employed are IRA, SIMPLE IRA, SEP IRA, individual 401(k), and defined-benefit plans. These small business retirement plans permit contributions ranging from $6,000 to nearly $300,000, per year.
What percentage of people don't save for retirement? ›
Retirement savings data and statistics
22 percent of Americans haven't contributed to their retirement savings in the past year, according to a recent Bankrate survey. 29 percent of Gen Z said they aren't saving for retirement, the same Bankrate survey found.
What is the biggest reason to participate in a retirement account through your employer? ›
Offering a 401(k) plan offers employers a powerful tool to attract talent as well as potential tax benefits. For employees, participating in a retirement program offers significant immediate tax savings and long-term financial benefits. The benefits of a 401(k) are significant to employers and employees alike.
How do I get the most out of my retirement plan? ›
6 ways to maximize retirement savings
- Take responsibility for your retirement. ...
- Start to protect your income by using a diversified retirement plan. ...
- Create lifetime income with the potential to grow. ...
- Save enough to get the match. ...
- See what a difference a few dollars can make. ...
- Look for more ways to save for retirement.
If you are at full retirement age or older, you can get all your Social Security benefits whether you retire from your business or not.
What's the best retirement plan for self-employed? ›
- Traditional or Roth IRA. Best for: Those just starting out. ...
- Solo 401(k) Best for: A business owner or self-employed person with no employees (except a spouse, if applicable). ...
- SEP IRA. Best for: Self-employed people or small-business owners with no or few employees. ...
- SIMPLE IRA. ...
- Defined benefit plan.
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
What is the average 401k balance at age 65? ›
Average and median 401(k) balances by age
| Age range | Average balance | Median balance |
|---|
| 35-44 | $91,281 | $35,537 |
| 45-54 | $168,646 | $60,763 |
| 55-64 | $244,750 | $87,571 |
| 65+ | $272,588 | $88,488 |
2 more rows14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
What is the first step in the retirement process? ›
Officially, you'll start the retirement process with your employer, letting them know when you plan to stop working. Depending on your employer and your tenure, you may need to write an official letter of resignation, document your contacts, processes, and files, and maybe even train a replacement.
The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.
What is the 3 rule for retirement? ›
What is the 3% rule in retirement? The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money.
What is a good retirement income? ›
After analyzing many scenarios, we found that 75% is a good starting point to consider for your income replacement rate. This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement.
Where is the safest place to put your retirement money? ›
Below, you'll find the safest options that also provide a reasonable return on investment.
- Treasury bills, notes, and bonds. The federal government raises money by issuing Treasury marketable securities. ...
- Bond ETFs. There are many organizations that issue bonds to raise money. ...
- CDs. ...
- High-yield savings accounts.
Though ideally, a small business owner can sell their business before retirement for a tidy profit, this is not always guaranteed nor is the sale amount. Some ways small business owners can ensure retirement savings are by establishing a SIMPLE IRA, a SEP IRA, a traditional or Roth IRA, and a Solo 401(k).
How do self-employed people save for retirement? ›
For self-employed workers, setting up a retirement plan is a do-it-yourself job. There are four available plans tailored for the self-employed: one-participant 401(k), SEP IRA, SIMPLE IRA, and Keogh plan. Health savings plans (HSAs) and traditional and Roth IRAs are supplemental options.
What is the best retirement plan for S Corp owners? ›
SEP IRA. The SEP IRA is easy to establish, making it an attractive option for S Corp owners. Unlike some other plans, the SEP IRA is accessible to businesses of any size, including those with employees.
Can an LLC owner contribute to a 401k? ›
Can owners of an LLC contribute to a 401(k)? Solo 401(k) plans are not limited to sole proprietorships. Businesses that are structured as limited liability corporations (LLC), as well as partnerships, may also participate in these plans if they meet all the eligibility requirements.
