Michael Gray interviews Phil Price, EA of The Price Company about retirement plans for small businesses for Financial Insider Weekly. Every small business owner should watch this! Part 1 of 2. …(read more)

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Qualified retirement plans for small businesses 2011, Part 1 of 2

Small businesses often struggle to provide competitive employee benefits due to their limited resources. However, offering a qualified retirement plan can be a powerful tool for attracting and retaining top talent. In this two-part article, we will explore the various options available to small business owners in 2011 for providing retirement benefits to their employees.

One of the most common types of retirement plans for small businesses is the 401(k) plan. A 401(k) plan allows employees to make pre-tax contributions to their retirement savings, which can be matched in whole or in part by the employer. In 2011, the maximum employee contribution limit for a 401(k) plan was $16,500, with an additional catch-up contribution of $5,500 for employees aged 50 and older.

Another popular retirement plan option for small businesses is the Simplified Employee Pension (SEP) plan. A SEP plan is easy to set up and maintain, and allows employers to make contributions to their employees’ retirement savings on a discretionary basis. In 2011, the maximum contribution limit for a SEP plan was the lesser of 25% of an employee’s compensation or $49,000.

For small businesses with fewer than 100 employees, a Savings Incentive Match Plan for Employees (SIMPLE) IRA may be an attractive retirement plan option. A SIMPLE IRA allows for both employee and employer contributions, with a maximum employee contribution limit of $11,500 in 2011, and an additional catch-up contribution of $2,500 for employees aged 50 and older.

In addition to these traditional retirement plans, small businesses may also consider offering a defined benefit plan, which provides employees with a specific retirement benefit determined by a formula based on their salary and years of service. While these plans tend to be more complex and costly to administer, they can be a valuable option for small businesses looking to provide their employees with a guaranteed retirement income.

It’s important for small business owners to carefully consider the needs and goals of their employees when choosing a retirement plan. Consulting with a financial advisor or retirement plan specialist can be a valuable step in the process, as they can help navigate the myriad of options and ensure that the chosen plan aligns with the company’s objectives and resources.

In the second part of this article, we will further explore the advantages and disadvantages of each retirement plan option, as well as the potential tax implications for both employers and employees. Stay tuned for Part 2!