Zombies are all the rage now. Mindless rambling beings who pursue their day-to-day culinary fixes with nary a concern for the future. (Sounds suspiciously like my uncle Tim.) Now what works for zombies doesn't necessarily work for retirement planning. The only way to really get a retirement plan going is to put a little forward thinking into it. What stops most people from doing that, though, is a lack of knowledge. The retirement world can be a little confusing as to its options, and nobody likes to jump into a pool of confusion. To help alleviate that situation, here's a breakdown of the most common retirement plans that are available for small businesses.
Small Business 401(k)
A 401(k) is a standard retirement plan that offers its participants tax deferred benefits. It allows for fairly large contributions, as well as the possibility of employer contributions. Now everyone knows that the 401(k) is the plan of choice for big industry, but what most people don't know is that small businesses can also offer the plan.There are companies that offer 401(k) services specifically for small businesses, and they have streamlined the administrative process to make it easy for the employer. The benefits of offering a retirement plan like the 401(k) are the same across the board: employee attraction/retention and enhanced tax strategy in the form of potential deductions.
The Solo 401(k) contains all the features of a standard 401(k), but it's designed specifically for self-employed individuals. That means that those who own their own business can access the same kind of retirement benefits as their corporate counterparts. These benefits include tax savings, large contribution levels, and the attractive possibility of accessing their retirement plans for a personal loan.
Related: What You Need to Learn Before Opting for a 401 (k) Plan
Defined Benefit Plan
A Defined Benefit Plan is a retirement plan that offers set benefits instead of those dependent upon investment returns. Factors that determine benefit levels typically include current salary and length of employment.In addition to the unique benefit structure, Defined Benefit Plans also offer the possibility of greater employer contributions (and deductions) than a standard Solo 401(k). These features make this kind of plan a perfect choice for those who want to pursue early retirement strategies.
Profit Sharing Plan
A Profit Sharing Plan differs from the previous plans in that the benefits are purely employer determined. They are not dependent upon the success of specific investments or upon some predetermined level. This makes it a great option for companies that need to be conservative with their cash assets, but would still like to attract talented employees with a retirement package. Additionally, this plan is extremely compatible with whatever previous or existing plans the company may possess.
Choosing a plan which works best for your small business depends on a number of factors. Availability of funds, expected retirement dates, and desired contribution levels all play major roles. One further element to consider is your personal preference for investment strategy. All of these plans come in both standard market and self-directed models. With a standard plan the funds can be invested in stocks or funds only, while in the self-directed model almost any asset can be utilized as an investment. In any scenario, the best thing to do is to get educated and then make a financially sound decision. That way you might actually be able to live a little during your retirement.
Author Bio: Cara Price is a caffeine based life form who ardently believes in the convergence of technology, communication, and art to help businesses thrive. She is currently working as a content and communication specialist for Broad Financial, a leading custodian of enhanced retirement platforms. She loves people, Pinterest, and the written word, and she can be contacted via email@example.com