Life is complicated, insurance doesn't have to be.
Ben is a fantastic manager at your restaurant. Your customers
compliment your amazing service and you know it’s because of his work.
Recently, he’s asked about retirement savings. You can’t imagine
there’s enough room in the budget to offer a 401k plan. You start to
worry. What if your amazing employee leaves to work somewhere with
This is an all-too-common situation for small business
owners. But, there are options that don’t require a small business
to invest in a 401k plan. One of them is offering an employer
sponsored Individual Retirement Annuity (IRA). There are two
options for these annuity retirement plans: a Simplified Employee
Pension (SEP) IRA and a Savings Incentive Matching Plan for
Employees (SIMPLE) IRA.
There are advantages and things to consider when
utilizing an employer sponsored annuity retirement plan:
Things to Consider:
The Simplified Employee Pension (SEP) IRA
A SEP IRA is a great option for small, sales
based businesses, sole proprietors and self-employed individuals.
Examples of these may include farmers and small businesses such as
insurance agencies. The employer, or proprietor, has the
flexibility to contribute to the plan only when they can. So, if
your business goes through yearly highs and lows this may be a
This type of retirement plan functions more like a profit
sharing plan. The employer, or sole proprietor, puts in the set
percentage of contributions only if they had a good year. They don’t
have to contribute to the plan every year. Contributions are not due
until the tax filing due date, making this a useful tax planning tool.
Employees can make traditional IRA contributions into their
SEP IRA. Employees often choose to do this because it is an easy way
to manage two types of contributions under one policy. If an
employee leaves the company, their SEP IRA will follow them. They
can continue to make traditional IRA contributions to their SEP IRA.
So, overall, the benefits of the SEP IRA
Retirement Plan include:
SIMPLE IRA Retirement Plan for Small
The SIMPLE IRA may be a good fit for
more established small businesses. If your business has less
than 100 employees, and has had steady growth for many
years, this may be a good option. The SIMPLE IRA plan
requires the employer to contribute funds every year.
A SIMPLE IRA functions more like a 401k plan. In this plan,
there are stipulations on how much the employer needs to contribute.
An employer has two options for contributing to their employee’s
1. Match each employee’s contributions. The
employer can choose to match their employees’ contributions up
to three percent of each employee’s compensation. The employer
must always match at least one percent. But, three out of every
five years the employer must match three percent.
2. Contribute two percent of each employee’s annual
compensation. Meaning, if an employee is eligible they will
receive two percent of their compensation every year. Employees are
still eligible to contribute.
Overall, the benefits of the SIMPLE IRA Plan include:
Setting up either plan is simple. They typically involve less
paperwork than other retirement plans. To start your
employer-sponsored Individual Retirement Annuity (IRA) contact your local, independent insurance agent.
*Products referenced may not be
approved/available in all states. Limitations and conditions
may apply. Premium will be based on benefits chosen and
policy rates available at time of application.
Disclaimer: This article is not expert advice. The
analysis of coverage is in general terms and is superseded
in all respects by the Insuring Agreements, Endorsements,
Exclusions, Terms and Conditions of the Policy. Some of the
coverage mentioned in this material may not be applicable in
all states or may have to be modified to conform to
applicable state law. Some coverages may have been
eliminated or modified since the publishing of this
material. Discounts may not be available in all states.
Limitations and conditions may apply. Premiums will be based on
benefits chosen. Please check with your local Independent
Auto-Owners Insurance Agent for details."
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