Everybody dreams of working for a big MNC at some point in their lives. However, there are many people who are employed by small businesses. A breeding ground for many promising talents, the small businesses offer tremendous benefits. However, there are many instances when an employee makes the cardinal sin of not opting for a retirement plan thinking that packages like those only exist in the realm of MNCs. The truth, however, is that there are many small business retirement plans one can opt for when employed in a small business. Some of the examples include Simplified Employee Pension Plan Individual Retirement Account (SEP IRA), Savings Incentive Match Plan for Employees (SIMPLE IRA), Self-employed 401k plan, and 401k plan, which is typically applicable in the case of large corporations. Here’an insight into the first three retirement plans.
- Simplified Employee Pension Plan (SEP IRA)
This small business retirement plan is typically targeted to self-employed individuals or small-business owners, including those with employees. It is contributed only by the employer with traditional IRA contributions by the employee. The employer can contribute up to 25 percent of the compensation or around $54,000 annually or the same percentage of the amount as contributed by the employee.
- Savings Incentive Match Plan for Employees (SIMPLE IRA)
Applicable for companies having a maximum of 100 employees, here, the contribution is made by both the employee and employer. Normally the employee has to contribute up to 100 percent of compensation through salary deferral. Additionally, a catch-up contribution of up to $3,000 is available for those older than 50 years of age. The biggest draw here is the low-cost option of $25 per participant or $350 plan fee.
- Self-Employed 401k
This plan is specifically designed for the self-employed with only their spouse as a partner and has no plans for adding any employee in future. A person can contribute 25 percent of annual income, which is the maximum limit. The contribution can be up to $18000 in salary deferrals or $24000 if an individual is more than 50 years of age.