Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. And if you’re a sole proprietor, a retirement account can help you save even more money for the future. We can provide you with ways to help with the cost of starting and operating a retirement plan. Here are some of the most popular retirement plans for small businesses.

Retirement plans for small businesses

1. Simplified Employee Pension (SEP) IRA Account. Contribute as much as 25% of your business’s net profit, up to $69,000 for 2024.
2. 401(k) Plan. Contribute up to $69,000 of your salary and/or your business’s net profit.
3. Savings Incentive Match Plan for Employees (SIMPLE) IRA Account. You can put all your business’s net profit in the plan, up to $16,000 plus an additional $3,500 if you’re 50 or older.

Tax breaks to start a retirement plan

Tax credit for startup costs. For up to three years, eligible businesses with 50 or fewer employees can receive a tax credit equal to 100% of the administrative costs. Eligibility requires establishing a workplace retirement plan. Businesses with 51 to 100 employees can also be eligible. However, the credit is limited to 50% of administrative costs and has an annual cap of $5,000.

This credit could potentially cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs as low as possible, it may be worth shopping around to look at different plan providers, as the fees can vary.

Tax credit for employer contributions. Eligible businesses with up to 100 employees may qualify for a tax credit. This is based on employee matching or profit-sharing contributions. The credit caps at $1,000 per employee and phases down gradually over five years. It is subject to further reductions for employers with 51 to 100 employees.

Once this tax credit expires after the plan’s first five years of existence, employer contributions to 401(k), SEP, and SIMPLE plans are still tax deductible up to certain limits. This means that both the employer and employee can continue to reap tax savings for the entire life of the retirement plan.

Assistance for small business owners

Remember that employees can still contribute to their own individual IRAs. So, let your employees know that in addition to having a 401(k), SEP, or SIMPLE account through your company,. they may also qualify to contribute to their own traditional IRA or Roth IRA.

It’s never been easier or more affordable to start a retirement plan for your business. If you have not already done so, look into the alternatives that best fit your business. Please contact our RRBB advisors if you have any questions.