New York Estate Planning & Elder Law Blog
Small businesses can develop retirement plans that benefit its owners and employees. There are devices available to help employers and employees save towards retirement. Retirement plans come in all shapes and sizes. The primary goal of a retirement plan is to provide financial security to its holders as they age and are no longer able to work to support themselves. People, no matter the age, must be able to support themselves and pay for their basic housing, food, and medical needs as they age.
When your business develops a retirement plan, significant tax advantages and other incentives may be available that help pay for the retirement plan gradually, building a retirement nest egg for the employer and the employee. Some of the business incentives contemplated in retirement planning include:
- Tax deductible employer contributions;
- Assets in the plan grow tax-free;
- Flexible plan options; and
- A retirement plan can attract and retain employees, reducing new employee training costs, and creating an outstanding work environment.
Retirement Plans
The Internal Revenue Service (IRS) supports and recognizes small business retirement plans as a means to help employers and employees of such businesses save towards retirement. For example, company sponsored individual retirement accounts (IRAs) can help an employer and its employees set up and fund their IRAs. With an IRA, the amount that an individual receives at retirement depends on the funding of the IRA and the earnings (or losses) on those funds. The plans are relatively easy to establish. Talk to your financial institution for more information. Other IRA-based options you may also want to discuss with your financial institution, estates and business succession planning attorneys, and accounts are:
- Simplified employee pension plan (employer can contribute up to 25% of each employee’s pay and receive a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan);
- Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Account Plan (plan for businesses with under 100 employees);
- Payroll deduction IRA (method for employee to build IRA portfolio without employer contribution); and
- 401k plan (a 401k is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax deferred basis.) Only an employer is allowed to sponsor a 401k for their employees. These contributions are deducted from the employee’s salary on a pre-tax basis).
The right retirement account is available for you, your business, and employees
It is important to plan your retirement and start business succession planning to create a plan for the management and operation of your small to medium sized business. Good business succession plans take many months to develop because parts of it may not be available or in the case of money investments take years to establish. Speak with an estate planning attorney, that specializes in business succession planning, about putting the proper estate documents in place for you and your business.