In order to attract quality employees, employers need to offer compelling incentives. One of the most important items that potential employees consider when interviewing for positions, is the retirement plan.
Retirement plans come in all different types, and it can be hard to determine which is best for your business. The plan you choose is going to depend on a variety of factors, and which plan you end up choosing will have a significant impact on the future of your company.
In this article, we will compare two of the most popular retirement plans utilized by small businesses so that you can determine which, if any, is the right choice for your company. These two plans are the SIMPLE IRA and the 401k.
With some additional information from plan provider Ubiquity, let’s take a look at how these plans match up with regards to a few important considerations.
The number of workers you employ is a huge factor when deciding on a retirement plan. The SIMPLE IRA can only be used by companies who have 100 or fewer employees. Once you exceed this number of workers, your business can no longer qualify for this plan.
The 401k, on the other hand, can accommodate companies with a single employee, or giant enterprises with hundreds of workers.
Therefore, if you run a very small business and have absolutely no plans of expanding beyond 100 employees, you may consider the SIMPLE IRA. However, the 401k is a compelling option for companies of all sizes, and may be a viable option as well.
Some retirement plans require that employers match employee contributions in order to ensure fairness.
With the SIMPLE IRA, employers are required to either match employee investments, or to make non-elective contributions, regardless of how much or how little employees contribute to their retirement fund.
However, with a 401k plan, employers can choose whether they will match employee contributions or not. This provides more freedom to the business owner and they can structure their matching contributions how they see fit.
Ease of Set-up
For those that want a plan that takes very little effort to set up and maintain, the SIMPLE IRA is the best choice. These plans tend to cost less to initiate and are simply less complicated than the 401k plan.
401k plans often require yearly testing to ensure fairness and paperwork that must be completed throughout the year.
SIMPLE IRA plans only have one option with regards to how contributions are taxed. There is no Roth version of the SIMPLE IRA plan, meaning that contributions are taxed in retirement, when the contributor begins to make withdrawals.
401k plans offer both Roth and Traditional options. This means that contributors can choose to have their investments taxed when they contribute, or when they withdrawal later on.
Which Plan Should You Choose for Your Business?
The choice is entirely up to you! Many companies attract great employees by offering a SIMPLE IRA, while other businesses prefer to offer 401k plans. As long as the plans make sense for your financial situation and the nature of your company, you can’t go wrong.