A strong retirement benefit plan can help you recruit employees and reduce turnover. Every employee wants to work for their future. A strong plan helps them feel comfortable with their current career and sets them up comfortably for the future. The various types of workplace retirement plans you can offer employees include SEP-IRA, 401(k), and PSPs.
A SEP-IRA is a retirement account that offers tax breaks for business owners and self-employed individuals who put money away for the future. Like a traditional IRA, SEP-IRA are contributions to a retirement account that are tax-deductible. When taken out at retirement, the distributions are taxed as income. SEP-IRAs are best for self-employed or small-business owners. With this type of retirement, you must match the compensation you give yourself to the contribution you make to your employee’s plan. Equal contributions as a percentage of compensation is why SEP-IRA is best for small-businesses with few employees.
A 401(k) plan is the most common type of employer-sponsored retirement savings program. A 401(k) is a voluntary retirement savings plan where employees can contribute a portion of their pre-tax earnings. Many companies match 401(k) contributions on a tax-deductible basis. While employers administer and control the plan, employees can borrow against the value of their 401(k) plan. According to Franchise Gator, some 401(k) plans let employees roll over the money to start a business. An employee’s plan can also rollover when switching from one company to another.
A PSP stands for Profit-Sharing Plans. A PSP is a retirement plan funded by discretionary employer contributions. As Sofi points out, an employee receives a percentage of a company’s profits based on its earnings. The employer can make contributions on a voluntary basis. This gives employees an opportunity to share in the profits of a company. This plan defers income taxes and asses them on distribution from the account in retirement. This retirement plan is totally controlled by the employer and leaves the employee at the mercy of their employers’ profits. Because of this it is less common and more beneficial for the employer than the employee.
Offering a retirement plan is a capital and time-intensive way of rewarding your employees. You want to choose what you can afford as an employer and what your employees need. Without offering a quality retirement plan, you risk losing great workers to competing businesses. Analyze the various plans available to determine what is right for your company.
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