Retirement & Eldercare

4 Small Business Retirement Plans To Help You Save on Taxes

Delia Mena
4 Small Business Retirement Plans To Help You Save on Taxes

Topics Included in This Article:

  • Simplified Employee Pension Plans (SEP)
  • Qualified Plan (Keogh)
  • Savings Incentive Match Plan for Employees (SIMPLE Plan)
  • Individual 401(k) Plan
  • Small Employer Pension Startup Credit

Although your retirement might not be on the immediate horizon and is not a cause for daily concern, you should not forget about making generous retirement contributions, especially when there are government incentives available.

Many small businesses have a variety of retirement plan options that can allow the employers and the employees to save for retirement in a tax-efficient manner. The owner of the business may opt to make contributions for themself or on behalf of the employees, which are potentially tax-deductible. In additions, the contributions can grow tax-free until distributions are taken from the plan.

Simplified Employee Pension Plan (SEP). SEP can help to avoid the complications that are involved with a qualified plan. The contributions to a SEP are maintained in the IRA accounts of the beneficiaries. For 2015, the deductible contributions are limited to 25% of the participant's compensation (for a maximum of $265,000) or $53,000. The SEP can be funded or established after the end of the year.

Qualified Plan (Keogh). Keogh plans typically have more complex rules. A mandatory contribution money purchase plan, or discretionary contribution profit sharing plan, or a combination of these two types of plans, might be included. Deductible contributions in 2015 are limited to 25% of the participant's compensation (for a maximum of $265,000) or $53,000. Keogh plans must be established before the end of the year. However, contributions to the plan can be made afterwards.

Savings Incentive Match Plan for Employees (SIMPLE Plan). A SIMPLE Plan allows the owner of the business to take a deduction. The employees of the business will in turn receive a salary deferral. The contribution limit in 2015 is $12,500 (per employee or employer). An additional $3,000 catch-up contribution limit is enabled for plan participants over the age of 50. The employer then has the option of making a non-elective contribution of 2% of compensation or matching the contribution at a rate of up to 3% of compensation.

Individual 401(k) Plan. Individual 401(k) plans offer the benefits of a traditional 401(k) plan with additional benefits for small business owners. The business owner may contribute and deduct up to 25% of compensation. The plan also allows for an additional $18,000 in salary deferral, up to $53,000. For business owners over the age of 50, the limit is $59,000. For employees, $18,000 is the limit for contribution and salary deferral. The additional catch-up contribution that is available to employees over the age of 50 is $6,000. Employers have the option to match the contributions of the employees.

If you decide to establish a new qualified pension plan as a business owner, you might be eligible for a "small employer pension startup credit." The credit amounts to 50 percent of the expenses related to administration and retirement education for the plan. The expenses that exceed this credit can be deducted as business expenses.

The tax year that includes the date in which the plan becomes effective is considered to be the first credit year. The business owner may opt to claim the preceding tax year as the first credit year. Some examples of expenses that might qualify for a "small employer pension startup credit" are costs incurred in order to modify the payroll system of the employer, consulting fees, and the set-up fees that are required to set up the investment vehicles.

If you need assistance with selecting the right retirement plan for your business or information regarding the tax benefits that your business might be eligible for, contact Delia Mena at (813) 600-3199.

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Delia Mena

Delia Mena

Delia Mena, CPA is a Tampa based tax professional who specializes in accounting and tax preparation. Delia is the founder of her own tax based practice, Delia's Accounting Service, based in Tampa, FL. With over 12 years of experience, Delia's practice is fully equipped to assist clients with any of their financial needs. Delia's Accounting Service provides the perfect mix of independent paralegal's, bookkeepers, and notary public professionals providing high quality services to a wide range of clients. To learn more about Delia and her practice, visit her website.

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