Keep it SIMPLE

How can you keep a retirement plan SIMPLE for a small business? One way is to find a plan easy to implement and understand. A SIMPLE IRA has two basic criteria. A company must have 100 employees or fewer (earning $5,000 or more in the preceding calendar year) and cannot have another retirement plan. Entities qualifying include C and S corporations, partnerships, and those filing a Schedule C or F.

You may be wondering, “Do I really need to offer a retirement plan?” If you wish to attract and retain quality employees, the answer is “yes.” Startup and annual costs may be lower than other retirement plans. Annual financial reports are not required and employers match either a fixed percentage of employees’ pay or contributions.

A potential bonus is that companies may be eligible for tax credits for the first three years of a plan.

Need another reason? One local business owner became a hero once his employees understood that the owner willingly incurred a cost to provide this benefit, which also included access to professional financial advice.

Of course, every plan has limitations, which in this case is what keeps it simple. Loans are not permitted, employer contributions are mandatory and 100 percent is vested immediately. There are also maximum contributions by employer and employees.

The trustee of a SIMPLE Plan is required to receive and invest the contributions and annually provide a summary description of the plan features. Beyond that, trustees select the personal level of service to provide and may include onsite seminars and individual employee meetings.

If you are considering a retirement plan for your business, ask a plan professional to help you determine what works best for you and your business needs. The rules regarding employer-sponsored retirement plans are very complex and easy to misinterpret.

— LeAnne Foster and John Kielich are financial consultants with the Moore|Kielich Group of AXA Advisors in Milwaukee.

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