Believe it or not, 2012 will soon be coming to a close and the new year provides business owners with an opportunity to take a fresh look at their company retirement plans.
With a looming fiscal cliff and an election still on tap, you may not want to wait until year-end for this review and might find it possible to make relatively simple adjustments to your current plan to increase contributions and reduce taxable income. You may also choose to add another plan type to supplement what is already in place and potentially reduce taxes even further. But which plan (or plans) is right for your business?
The qualified retirement plan universe is quite vast. The most popular is the 401(k) plan, with its lower costs and the increased flexibility provided to employees. A 401(k) plan allows you and your employees to defer the maximum annual contribution of $17,000 (plus another $5,500 catch-up if you are 50 or older).
Still not saving enough for retirement? Then you might want to consider adding a profit sharing feature or offering a defined benefit plan. A profit sharing feature allows you to contribute a portion of the profit to the 401(k) plan rather than distributing excess profits to yourself and paying ordinary income tax. Profit sharing contributions are not mandatory and can provide greater flexibility; however, income and/or compensation limits do apply.
If you're looking for even more retirement savings, then a defined benefit plan may have some appeal. These plans can allow for greater contributions and work best if your business has few employees and predictable earnings.
Today, the private business owner has a variety of plan design options. However, it's not always easy to maximize contributions because of strict compliance and non-discrimination rules. Large differences in employee ages and eligible compensation of plan participants further contribute to this difficulty. But with the right advice, you may be able to get the most out of your plan, which may help you and your employees save more for retirement.
