As a small business owner, you have a range of responsibilities to your employees, but one that’s often overlooked is the issue of retirement. After all, how are you supposed to provide for your employees’ retirement if you can barely afford your own – and many entrepreneurs can’t since they’re so busy pouring everything they have into their business. Well, maybe it’s time to change tactics.
When entrepreneurs support their employees in long-term ways, they reduce turnover and the resultant onboarding costs, and drive loyalty, all beneficial to your business as a whole. And, if you approach it correctly, contributing to employee retirement can have tax advantages. What have you got to lose?
Know Your Options
There are several different retirement plans designed specifically for small business employees. These including the SEP IRA and SIMPLE IRA, as well as the SIMPLE 401(k), all of which are designed to minimize administrative needs. Which you choose depends largely on whether you want to enable employee contributions or not, or whether you want to maximize contributions in general.
What About Your Retirement?
Of course, if you’re going to fund employee retirement, you should also be mindful of your own, or else you may find yourself in a precarious position. One way you can do this, besides setting up your own retirement account, is ideally through an IRA because they come with tax advantages, but that’s just one step.
Another thing you should consider doing is taking out a life insurance policy. This won’t serve you personally in retirement, but if your career is cut short or your business fails and you fall behind on your savings, it will give your family a critical buffer – and a reminder that planning for the future takes many forms.
New Tax Advantages
There are specific tax advantage retirement accounts, but more recently the federal government stepped in to support small businesses who back employee savings through the SECURE Act. Signed into law in December 2019, the SECURE Act offers tax credit to small businesses for starting a retirement plan, and also gives small businesses more opportunities to join multiple employer plans (MEPs) beginning in 2021. That means you’ll have a wider variety of options when deciding how to back employee retirement.
An Overall Savings
Whatever reasons have been holding you back from funding employee retirement plans, now is the time to invest – at least in part because, if you’re like most small businesses, you’re probably wrong about the situation. According a Pew survey described by USA Today, 70% of companies said these accounts were too expensive to set up and 60% said they were too difficult to administer. That suggests that these businesses are either making unfounded excuses to avoid obligations or they’re willfully ignorant regarding these accounts. Neither is a good look, professionally speaking.
Employees are increasingly concerned with finding a job offering retirement benefits, so when small businesses don’t offer such accounts, they take themselves out of the running. Entrepreneurs need to tune into their own long-term needs – planning for their own retirement – but they can’t leave their employees out in the cold.
How will you step up to support your team?