Retirement Savings Plans for Small Businesses

February 01, 2018

      spotify.gif   listen_on_iheartradio_badge.png

In this episode of “The Bottom Line,” EisnerAmper Private Business Services manager Tim Schuster talks about the benefits of a retirement savings plan for companies. Tim looks at SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans and tells us about the eligibility and contribution limits for each.


Transcript

Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone. I’m your host Dave Plaskow and with us again is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. In this episode we’ll discuss the different types of retirement savings plans available to small business owners. Tim, nice to see you.

Tim Schuster: Dave, it’s always a pleasure.

DP: Before we delve into the different types of plans, why is it important for small business owners to make retirement plans available to employees?
TS: Absolutely. A scary thought really is that retirement plans are actually going to be the main vehicle for people to save for retirement. You can’t fully rely on Social Security, nor would I put all of my eggs into Social Security. Really, another good thing, too, that a business can utilize this for is a really good way to recruit employees. It really is a great way to keep valuable employees. And, also, business owners, honestly, can benefit from it because it’s tax deductible.
DP: Sure.
TS: Absolutely.
DP: So what are the best plans suited to small businesses?
TS: Basically, there are three plans. One is the Simple Employment Pension plan, or SEP IRA. Another is the Savings Incentive Match Plan for Employees, or SIMPLE IRA. Self- Employed 401(k) plans, and also there’s a 403(b) plan for nonprofits, but we can save that one for another day.
DP: Okay. So with the other three, can you break each of those down for our listeners?
TS: Sure. Every plan has a variety of facets, but for our purposes today we’re going to really examine two, which is eligibility and contribution limits.
DP: Yep.
TS: So with the SEP IRAs, employees must participate if they have a minimum age – typically it’s 21 – and also a length of employment, and what I tend to see with my clients is anywhere between, say, three of the last five years.
DP: Okay.
TS: And also they have to have a salary of roughly $600 which is also, ironically enough, similar to the miscellaneous income amounts that 1099s would have to be issued.
DP: Sure.
TS: So, an employer’s total contribution is limited to the lesser of either, say, 25% of the employee’s wages or roughly $55,000.
DP: And the Simple IRA?
TS: So a Simple IRA is a savings incentive match plan for employee’s individual retirement plan accounts. It’s available to employers with 100 employees or less, and the employer may match the contributions of employees up to roughly 3% of an employee’s compensation. Or the employer might contribute a flat 2% of compensation for each employee, with at least $5,000 in compensation for the year. The employee contribution limit is $12,500.
DP: And finally, the Solo 401(K) plan.
TS: This plan is designed for sole proprietors with no full-time employees other than the business owner and spouse. The elective contribution limit is $18,000 of pre-tax income. In addition, you can make a non-elective profit-sharing contribution of up to 25% of pay. The maximum total contribution is roughly $53,000, so if you want to contribute a larger amount you may want to consider this over a SEP IRA.
Before we recorded this podcast today, I read this interesting fact that might have some potential big impacts under tax reform. So, most 401(k) plans and similar defined contribution benefits are offered by large employers because they’re too expensive for small businesses to administer. Under tax reform, it may become less – even less advantageous for small businesses to host these accounts. The bill reduces the income tax rates for small businesses, but does not address offering or contributing to retirement plans.
DP: So that’s just another tentacle of tax reform that’s reaching out there. This is really touching on a lot of different areas for people.
TS: Absolutely. The onion keeps on peeling.
DP: So Tim, it’s about that time for one of your always illuminating New Jersey Historical Society fun facts.
TS: Absolutely. So everyone loves going down the shore, but I don’t know if people are aware, the longest boardwalk is actually in New Jersey. Can you guess where?
DP: I’m going to say Wildwood.
TS: Wildwood is close. You’re in the right vicinity. But actually, it’s Atlantic City.
DP: Ah.
TS: So Atlantic City is the world’s longest boardwalk. So if you go down there, congratulations guys. You are a part of some sort of historical fact there.
DP: Nice. Well, thanks for all this great information Tim – it’s valuable as always.
TS: My pleasure.
DP: And thank you for listening to The Bottom Line as part of the EisnerAmper podcast series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@EisnerAmper.com and visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

About Tim Schuster

Mr. Schuster is a Manager providing tax compliance services to individual filers, as well as assistance on tax returns for companies in the manufacturing and real estate industries.

* Required


More Podcasts in This Series

Is There a Difference Between Outsourcing and Private Business Services?
Is There a Difference Between Outsourcing and Private Business Services?

Lindsey Gross of EisnerAmper’s Outsourced Finance and Accounting Group joins Tim Schuster from Private Business Services to discuss the differences between these two areas, client case studies that demonstrate those differences, and which types of client could benefit from each.

You’re Not Using Social Media to Grow Your Business?
You’re Not Using Social Media to Grow Your Business?

The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.

Pair of New Laws Impacts NJ Workers and Employers
Pair of New Laws Impacts NJ Workers and Employers

Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.

Creating a Quarterly Planning Calendar
Creating a Quarterly Planning Calendar

In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.

The Importance of Having an Emergency Fund
The Importance of Having an Emergency Fund

In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.

Why the Sandwich Generation Needs to Talk Finances
Why the Sandwich Generation Needs to Talk Finances

Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.

New Jersey Sick Leave Goes into Effect
New Jersey Sick Leave Goes into Effect

As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.

Filling Employment Needs in a Sellers’ Market
Filling Employment Needs in a Sellers’ Market

EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.

Don’t Postpone Making Your Will
Don’t Postpone Making Your Will

EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.

Don’t Get Scammed By Someone Pretending to Be from the IRS
Don’t Get Scammed By Someone Pretending to Be from the IRS

The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam

High Court Rules on the Taxation of e-Commerce
High Court Rules on the Taxation of e-Commerce

The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.

Employee or Contractor – The DOL’s Watching
Employee or Contractor – The DOL’s Watching

This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.

NJ Budget Mixes Some of the Familiar (and Not-So Familiar)
NJ Budget Mixes Some of the Familiar (and Not-So Familiar)

This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.

Tim's Top Individual Tax Questions
Tim's Top Individual Tax Questions

In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.

Top 7 Questions on Tax Reform
Top 7 Questions on Tax Reform

This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.

What Is the State of Your College Savings Plan?
What Is the State of Your College Savings Plan?

Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.

Which Health Spending Account Is Right for Your Business?
Which Health Spending Account Is Right for Your Business?

EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.

SBA Loans for Improving or Expanding Your Business
SBA Loans for Improving or Expanding Your Business

EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.

How to Succeed at Succession Planning
How to Succeed at Succession Planning

EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.

Plan Today for Tomorrow’s Disaster
Plan Today for Tomorrow’s Disaster

EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.

Welcome to "The Bottom Line"
Welcome to "The Bottom Line"

In this episode, Our private business services advisor Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors so your accountant, banker and lawyer will all be on the same page.