So it should come as no surprise that funding your retirement will likely fall on your shoulders. But what type of retirement plan is the right fit for your business? There are several types to choose from and the options can be confusing. For example, some small-business retirement plans are better for sole proprietors, while others may be more appropriate for businesses with up to employees.
We will focus only on the first 3, which are generally more suitable for very small businesses—typically, employees or less. Each of these plans has different characteristics—such as the ability to cover employees, contribution limits, and administrative responsibility, to name a few. To choose the right plan for your business, you need to understand the nuances of these plans and match them to your priorities e.
Understanding the differences in the plan types is an important exercise. If you have been operating a plan that doesn't match your business needs, you could be missing out on important tax benefits, or possibly making mistakes regarding employee contributions.
Your pension, your way
But this is where the similarities end, particularly about whether the plans cover employees and, if so, who is responsible for making contributions. Is it critical that employees be able to contribute to the plan? Knowing what you want and need ahead of time is a key component, because each plan has its advantages and disadvantages. As you consider the specific features of each plan, it's important to remember that there are always trade-offs. Think very carefully about your priorities. Here are some factors that may be helpful as you consider the right retirement plan for your business:.
Covering employees If you have no employees other than you and your spouse or business partner and want the highest possible contribution limits, consider a Self-Employed k. Contributions: How much and who pays? Next, think about how much flexibility you want in terms of contribution limits and who is responsible for making such contributions. A Self-Employed k plan offers the largest possible contributions because it recognizes that self-employed people wear 2 hats—as an employee and as an employer.
You are also eligible for added tax breaks. If your business is not incorporated, you can generally deduct contributions for yourself from your personal income.
Why it pays to outsource your pension provision - LifeSight
If your business is incorporated, the corporation can generally deduct the contributions as a business expense. Just remember that, if you have employees in years you contribute, you have to contribute the same percentage for them as you contribute for yourself.
On the other hand, if you want your employees to help fund their retirement account, you may want to consider a SIMPLE IRA, available to businesses with up to employees. Time and money The good news is that all 3 of these plans are relatively low cost and easy to administer. To make the most of this retirement savings opportunity—both for yourself and your employees—make sure it's the right plan for your small business before you set one up.
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How to plan your pension: A guide for small business owners
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Email address can not exceed characters. The article discusses the importance of pension plans and different types of retirement plans available in India.
Pension plans or retirement plans offer you the dual benefits of investment and insurance cover. Invest a certain amount regularly towards your pension plan to accumulate corpus in a phase-by-phase manner. This will ensure a steady flow of monthly pension once you retire. When you start contributing to your retirement early, the funds build a secure golden year money-wise over the years. A well-chosen retirement plan can help you rise above inflation, thanks to the power of compounding.
Anybody who wants to secure their retired life financially should start investing in pension funds. Section 80C also allow several retirement plans that also offer tax deduction up to Rs. Any fund you choose must align with your investment goals or retirement plans. For instance, if you wish to retire early, your corpus upon maturity should be enough to support the additional years. So, the key is to scheme smartly. Then you will be able to enjoy the double benefit of building wealth while saving on income tax.
You can get a fixed and steady income after retiring deferred plan or immediately after investing immediate plan , based on how you invest. This ensures you a financially independent life after retiring. Use a retirement calculator for a rough estimate of how much money you might require monthly after retirement. Pension plans are entitled to tax exemption specified under Section 80C.
A retirement plan is essentially a product of low liquidity. However, some companies allow withdrawal even during the accumulation stage. This will ensure funds to fall back on during emergencies without having to rely on bank loans or others for financial requirements. This is the age when you begin to receive the monthly pension. For instance, most pension plans keep their minimum vesting age at 40 or It is flexible up to age 70, though some companies allow the vesting age to be up to An investor can either choose to pay the premium in periodic intervals or at once as a lump sum investment.
Take a close look at the Trustee Board governance. What is its quality and level of independence — and in particular the diversity of skills they can demonstrate to truly focus solely on looking after your employees and their retirement and post retirement outcomes? Finally, value for money. So you need to look closely at the member outcomes in order to truly assess the value for money. Investment returns, innovation, and levels of member engagement to drive better member outcomes are a far better indication of value delivered than fees alone.
Pensions are, and will remain, a critical part of any employment package. Employment itself is changing, as are pensions themselves. As we have seen, many firms are already reviewing their pension provisions, and more and more opting for DC master trusts.
These are set to increase their market share from 12 per cent today to around 26 per cent in the next three years. Outsourcing is becoming the norm. That means that the onus is more than ever is on the business to secure a provider which can deliver the best levels of engagement and return for each and every member, whatever their employment status or life-stage. Click here to cancel reply. Businesses outsource a huge range of services.
So why not pensions?