From your perspective as an employer, the challenge is finding the right retirement plan. There are many different types of retirement plans to choose from, and each has unique features that are appropriate for some employers but not others. It is important that you select and implement the plan that best suits your needs, the needs of your business, and the needs of your employees.
Retirement Plans Most Appropriate for Self-Employed/Sole Proprietorship/Partnership
If you are a self-employed individual or a small business owner, you know that your needs differ from those of large employers. Accordingly, there are several types of retirement plans that are specifically designed for your situation. Consider setting up one of the following types of plans:
Payroll Deduction IRA Plan
Simplified Employee Pension (SEP) Plan
SIMPLE IRA Plan
SIMPLE 401(k) Plan
Solo 401(k) Plan
Retirement Plans Most Appropriate for Corporations
In a larger corporate setting you have many more constituencies to consider and serve. One of your goals in choosing a retirement plan may be to balance the needs of owners, managers and employees. There are many types of plans that may enable you to achieve this goal, including the following:
Payroll deduction IRA plan
Simplified employee pension (SEP) plan
SIMPLE IRA plan
SIMPLE 401(k) plan
Money purchase pension plan
Age-weighted profit-sharing plan
New comparability plan
Defined benefit plan
Target benefit plan
Cash balance plan
Employee stock ownership plan (ESOP)
Retirement Plans for Tax-Exempt Organizations
A tax-exempt organization is not subject to federal income tax. Because of this special treatment, such an organization has unique considerations for setting up a retirement plan. (For example, an employer tax deduction is generally of little or no value.) There are two types of plans that may meet the needs of tax-exempt organizations: 403(b) plans and 457(b) plans.
In addition, tax-exempt organizations may adopt a qualified retirement plan (including 401(k), profit-sharing, money purchase, and defined benefit plans). For more information, including links to detailed discussions of each type of plan, see our separate topic discussion, Retirement Plans for Tax-Exempt Organizations.
Non-Qualified Deferred Compensation Plans
You might also consider setting up a nonqualified deferred compensation plan. Compared to qualified plans, these plans are relatively flexible in that they need not satisfy stringent requirements. You and your employees may also receive more benefits under a nonqualified plan, since there are no limits on employer contributions. However, the main disadvantages of nonqualified plans are (a) they are typically not as beneficial from a tax standpoint, (b) they are generally available only to a select group of employees, and (c) the assets are not protected in the event of the employer's bankruptcy. For this reason qualified plans usually appeal to the largest number of employers and employees.
A stock plan is a form of employee compensation that provides your employees with either stock or an amount of cash that is based on the performance of your company's stock. There are numerous types of stock plans that you can offer to your employee, including employee stock ownership plans (ESOPs), restricted stock plans, stock appreciation rights (SARs), stock option plans, and employee stock purchase plans.
Although prepared from sources believed to be reliable, Pilot Capital Management makes no claim as to the accuracy of the contents of this report. You should never enter into any financial transaction or strategy intended to alter your federal or state tax liability without consulting a CPA or other qualified tax advisor.
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