Business Retirement Plans
Business Retirement Plans
Small business retirement plans provide a powerful asset for your business. They can help you:
- Save money in taxes for your business (employer contributions to the plan are generally tax deductible for federal income tax purposes).
- Maximize your business’s profitability by helping to attract and retain quality employees.
- Boost employee productivity further improving your business’s bottom line.
- Enjoy significant tax advantages when saving for your retirement.
Finding the right plan for your business can be challenging. With so many different types of retirement plans to choose from, the task can seem overwhelming. It is important that you choose a plan that best suits the needs of your business and your employees without compromising your values. As a plan sponsor and fiduciary to a qualified retirement plan, you need someone on your side to assist you with your responsibilities under the plan. We can help you:
- Select the plan that is most appropriate for your business.
- Educate you and your employees about your plan.
- Service your plan whenever needed (make plan amendments, loans, and much more).
Small Business Retirement Plans Fact Chart
|SEP IRA||SIMPLE IRA||Profit Sharing||401(k)||Defined Benefit|
|WHO IT’S FOR||Self employed business owners with few or no employees||Businesses with less than 100 employees, want employees to contribute and have no other plan||Small business with few employees whose profits or financial ability to contribute to a plan varies each year||Nearly all employers can open a 401(k) account. However, these plans may be particularly attractive to those employers with over 25 employees, a sufficient number of employees who will defer a portion of their salaries, are willing to make employer contributions and will spend the time and money that a 401(k) plan requires.||Self employed business owners with few or no employees who earn $200,000 or more and want to save quickly for retirement|
|KEY FEATURES||Easiest plan to administer, optional contributions||Requires limited level of employer contributions, partially funded by employee salary deferrals, inexpensive to administer||Permits higher employer contributions than SEP or SIMPLE, offers delayed vesting or waiting periods for participation, requires annual tax filing||Employer contributions are discretionary and, if made, income tax deductible. Employees can contribute with pretax dollars; their deferrals are not included in their gross income. Note: a safe harbor 401(k) is designed to eliminate the need to test for discrimination and top heaviness; therefore, employer contributions are generally required.||Funding based on an annual target benefit rather than contribution limits, mandatory annual funding, requires actuary services|
|WHO CAN CONTRIBUTE||Employer only||Employer matching or non elective contributions with employee salary deferral contributions||Employer contributions||An employee who is at least 21 years and worked 1,000 hours for the employer in a previous 12-month period. Two years of service may be required for participation in a discretionary employer contribution (if the plan has one) as long as the employee will be 100% vested immediately||Employer contributions|
|CONTRIBUTION LIMITS||The lesser of 25% of an employee’s compensation (or 20% for yourself if self-employed contributing to your own SEP) or $53,000 for 2015 and 2016. You may consider up to $265,000 for 2015 and 2016 compensation||Employee salary deferral of $12,000 ($12,500 year 2015) and additional $2,500 ($3,000 year 2015) if over age 50, plus employer match||25% of salary (20% of self-employment income) up to $53,000 for 2015 and 2016||Employees may defer up to $18,000 of their salaries for 2015 and 2016 ($24,000 if over age 50 for 2015 and 2016). However, highly compensated employees may be subject to other limits to satisfy various IRS tests.||No set limit. Contributions are based on actuarial assumption. Maximum annual retirement benefit is lesser of $210,000 or 100% of average compensation for highest three consecutive years|
|ANNUAL FILING AND MAINTENANCE||None||None||Form 5500, TPA services required||5500 form, annual TPA services required. Annual notices must be given to employees (i.e. safe harbor notices and other ERISA disclosures). A TPA may also be required to conduct annual testing of the plan to ensure compliance with various IRS requirements. Like all ERISA Plans, the employer must obtain an ERISA Fidelity Bond to protect plan assets from abuse or theft.||Form 5500, TPA services required|
|ACCESS TO ASSETS||Penalty free after age 59 ½ , possible 10% penalty if taken before||Penalty free after age 59 ½ , 25% penalty if taken within 2 years after first contribution and possibly 10% penalty if taken before age 59 ½||Trigger event must occur to withdraw. In service withdrawals may be permitted depending on plan||Generally, a 401(k) plan can distribute elective contributions and earnings to an employee only upon the employee’s death, disability, severance from employment, attainment of age 59½, hardship, or termination of the plan.||$58,902
Trigger event must occur to withdraw. Loans may be permitted depending on plan
|DEADLINES||Generally April 15||October 1||December 31 (or end of fiscal year)||A traditional 401(k) plan may be established anytime on or before December 31. However, a safe harbor 401(k) must be established on or before October 1st.||December 31|
Selecting the right plan is critical, but it is only the first step. The next is deciding how to manage it. When you choose the Azzad Ethical Wrap Program, we can help you:
- Plan: evaluate your financial situation and future goals
- Allocate: develop a disciplined asset allocation strategy
- Diversify: create a well-diversified portfolio that is professionally managed
- Screen: invest in companies that are in harmony with your values
- Rebalance: review and adjust your portfolio regularly
Do you already have a retirement plan for your business? Discover how we can help you:
- Enhance your plan with smarter investment choices
- Align your investments with your ethical investment philosophy
- Streamline administrative functions to reduce your plan’s costs
- Review your plan to ensure it is the right one for you
Sponsoring a qualified retirement plan for your business can be challenging. As the sponsor, you are a fiduciary to your plan. That means you must manage the plan prudently and follow IRS and DOL requirements, including obtaining an ERISA Fidelity Bond. As your investment advisor, Azzad can assist you with some of your fiduciary duties. We are also a fiduciary to your plan. This publication from the Department of Labor outlines some of your responsibilities.
Note: Azzad Asset Management does not provide tax or legal advice.