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
|DEFINED CONTRIBUTION||DEFINED BENEFIT||EMPLOYER-SPONSORED IRAs|
|401(k) plan||Profit sharing||Cash balance||Defined benefit||SEP IRA||SIMPLE IRA|
|WHO IT’S FOR||401(k) plans may be particularly attractive to employers whose employees are likely to defer a portion of their salaries, who are willing to make employer contributions, and who will spend the time and money that a 401(k) plan requires.||Small business with few employees whose profits or financial ability to contribute to a plan varies each year.||Closely held businesses that want to make larger tax deductible contributions than a defined contribution plan, have consistent and sustainable profits, and want to favor partners who are older than staff.||Self-employed business owners with few or no employees who earn $200,000 or more and want to save quickly for retirement.||Self-employed business owners with few or no employees.||Businesses with fewer than 100 employees, who want employees to contribute, and have no other retirement plan.|
|KEY FEATURES||Employer contributions are discretionary and income tax deductible. Employees can contribute with pre-tax 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.However, a cross-tested plan may be more beneficial to some employers.||Permits higher employer contributions than SEP or SIMPLE IRAs, offers delayed vesting or waiting periods for participation, and requires an annual tax filing. This is the most flexible qualified plan.||A defined benefit plan with features of a defined contribution plan. Accounts are credited with an employer contribution credit plus an interest credit rate, as defined by the plan document. Funding is mandatory to keep the plan assets on course to pay the promised benefits at retirement.||Funding based on an annual target benefit rather than contribution limits. Annual funding is mandatory and actuarial services are required.||Easiest plan to administer. Contributions are optional, but if the employer makes contributions to his/her own account, he/she must contribute that same percentage of compensation to all eligible employees.||Requires limited level of employer contributions and is partially funded by employee salary deferrals. Inexpensive to administer.|
|WHO CAN CONTRIBUTE||An employee who is at least 21 years old and has worked at least 1,000 hours for the employer in the previous 12-months. 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 only||Employer only||Employer only||Employer only||Potentially employer and employees. The employer may match up to 3% if employees contribute, or the employer may make non-elective contributions of 2% for employees.|
|CONTRIBUTION LIMITS||Employees may defer up to $18,500 (2018) or $19,000 (2019) of their salaries. An additional $6,000 is allowed for people over age 50. However, highly compensated employees may be subject to other limits to satisfy IRS tests||Lesser of 25% of salary, 20% of self-employment income, or $55,000 (2018) / $56,000 (2019).
If you also have a 401(k) plan, total defined contributions cannot exceed $55,000 (2018) / $56,000 (2019) per year.
|No set limit. Contributions are based on actuarial assumption. Maximum annual retirement benefit is lesser of $220,000 (2018) / $225,000 (2019) or 100% of average compensation for highest three consecutive years.||No set limit. Contributions are based on actuarial assumption. Maximum annual retirement benefit is lesser of $220,000 (2018) / $225,000 (2019) or 100% of average compensation for highest three consecutive years.||For employees, the lesser of 25% of compensation or $55,000 (2018) / $56,000 (2019). For self-employed individuals, the lesser of 20% or $55,000. You may consider up to $275,000 for 2018 compensation and $280,000 for 2019 compensation.||Employee salary deferral of up to $12,500 (2018) or $13,000 (2019), plus employer match. An additional $3,000 is allowed for people over age 50).|
|ANNUAL FILING AND MAINTENANCE||Form 5500 and annual TPA service required. Annual notice must be given to employees (e.g. safe harbor notices and other ERISA disclosures). A TPA may also be required to conduct annual testing of the plan to ensure compliance with 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.||Form 5500, TPA, and actuarial services required. May require ERISA fidelity bond and and PBGC coverage.||Form 5500, TPA, and actuarial services required. May require ERISA fidelity bond and and PBGC coverage.||None||None|
|ACCESS TO ASSETS||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 59.5, hardship, or termination of the plan.||Trigger event must occur to withdraw. In-service withdrawals may be permitted depending on plan.||Trigger event must occur to withdraw. Some plans may not allow distributions until retirement age.||Trigger event must occur to withdraw.||Penalty-free after age 59.5; possible 10% penalty if taken before 59.5.||Penalty-free after age 59.5; 25% penalty if taken within 2 years after first contribution and possible 10% penalty if taken before age 59.5|
|DEADLINE TO ESTABLISH||A traditional 401(k) plan may be established any time before December 31. However, a safe harbor 401(k) must be established by October 1.||December 31, or the end of your business’s fiscal year.||December 31||December 31||Generally April 15 or October 15 if filing an extension.||October 1|
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.