Small business owners have enough headaches already, what with meeting payroll, dealing with government regulations and pleasing customers. Setting up a retirement plan can seem like extra red tape — and possibly expense — owners can do without.
But creating such a plan is more doable than retailers may realize and even comes with benefits for the small business and its owner, says Andrew Denney, founder and CEO of Prosperity Financial Group. “I’ve worked with some employee retirement plans where there was in excess of $500 million in the plan,” Denney says. “At the other end, I’ve seen businesses with as few as 10 employees set up a plan.” Yet as a group, small businesses tend to forgo retirement plans.
For example, only 22 percent of workers at firms with fewer than 10 employees report having access to a workplace savings plan or pension, compared with 74 percent at firms with 500 or more, according to a Pew Charitable Trusts report.
Employee-sponsored 401(k) and IRA plans are among the more popular options for businesses that do offer a retirement benefit. Those savings plans allow the employees to deposit money routinely in the accounts with a deduction taken out of their paychecks.
Since these are tax-deferred retirement plans, the employees see a lower income-tax bill at the end of the year. Some employers also offer a company match, providing an even heftier balance to the accounts. But employees aren’t the only ones who benefit. Denney says there’s also an upside for the small business owner, including:
• Employee recruiting and retention. Any business wants to hang onto good employees and offering a retirement plan helps do that. They’ll be happier knowing they’re more likely to have some financial security in retirement. A retirement benefit also serves as a recruiting tool. Imagine a job candidate who’s weighing similar offers from two businesses, but one has a retirement plan and the other doesn’t. “It separates you from the pack,” Denney says.
• A lower tax bill. The business potentially can reduce its tax burden because a company’s contributions to the retirement plan are tax deductible. In some cases, the businesses also may qualify for a tax credit to help offset the cost of starting the plan, according to the IRS.
• An opportunity to invest in your own retirement. Like their employees, small business owners may not want to work forever and need to set aside money for their own retirements. They’ll enjoy the same tax-deferred benefits the employees do as they build that nest egg.
“It’s worthwhile for a small business owner to investigate whether an employee retirement plan is more attainable than they might realize,” Denney says. “A financial professional with experience in setting up such plans can explain to them the advantages and disadvantages, and suggest which plan would work best for their situation.”
Andrew Denney, founder and CEO of Prosperity Financial Group (www.pfgmidwest.com), has more than 13 years’ experience in the finance industry, where he advises clients in such areas as retirement planning, asset protection, estate planning and wealth management. Denney holds Series 7 and Series 66 securities registrations with LPL Financial, in addition to a life insurance license. He has a degree in finance from Missouri State University.