Small Business Retirement Plans
Our Planters Bank Trust Services team can help you with your Small Business retirement planning. The following retirement savings options are provided through our Trust Services.
In all mentions of federal tax deductibility and/or tax implications within this section, please seek qualified tax advisement.
SEP-IRA
A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners. When establishing a SEP-IRA Plan for your business, you and any eligible employees setup a separate SEP-IRA. Employer contributions are then made into each eligible employee’s SEP-IRA.
Plan Eligibility
You can establish a SEP-IRA Plan if you:
- Are a sole proprietor, in a partnership or are a business owner (of either an unincorporated or incorporated business, including Subchapter S Corporations).
- Earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at another business where you are employed or if you have funds within any qualified retirement program.
Tax Advantages
- Tax-deductible contributions up to 25% of your individual compensation.
- Tax-deferred growth with any SEP-IRA qualified investment until withdrawal. However, you will be subject to pay a federal tax penalty for withdrawing any of your SEP-IRA money before retirement.
Contribution Flexibility
No annual contribution is required.
- Contribution percentage can vary each year, from 0% to 25% of compensation.
- The employer must make all SEP-IRA contributions, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer.
SIMPLE IRA
A SIMPLE IRA Plan allows you and your employees to make contributions to SIMPLE IRAs. Contributions can be made via elective deferral (employee) and matching or non-elective contributions (employer). Employer contributions are tax-deductible and employee contributions are excluded from income for federal income tax purposes.
Plan Eligibility
You can establish a SIMPLE IRA if you are:
- A sole proprietor, partnership, limited liability corporation (LLC) or incorporated business (including Subchapter S Corporation with 100 or fewer employees).
- An eligible employee who has:
- Received at least $5,000 compensation from the employer during any two years preceding the current calendar year and is reasonably expected to receive at least $5,000 in compensation from the employer in the current calendar year.
Tax Advantages
- Employer contributions are tax deductible for the employer.
- Employee elective deferrals are excluded from the employee’s income for federal income tax purposes.
- Any investment and/or interest earnings within a SIMPLE IRA are tax-deferred until withdrawn. However, you will be subject to pay a federal tax penalty for withdrawing any of your SIMPLE IRA money before retirement.
Contribution Flexibility
- The employer may elect a matching contribution formula or a non-elective formula of 2% of compensation for all eligible employees.
- If a matching formula is elected: The employer must match the employee’s elective deferrals up to 3% of the employee’s compensation for the year.
- An employer can choose different alternatives for each year. Examples:
- A 3% employer match can be reduced to a minimum of 1%.
- The employer cannot choose a percentage less than 3% for more than 2 years during a 5- year period that ends with and includes the year for which the choice is effective.
- The employer may choose the non-elective formula of 2% of all eligible participants’ compensation. Under this formula, all eligible employees would receive this non-elective contribution whether making elective deferral contributions or not.
Contact a Planters Trust Services team member to find out more about Small Business Retirement Plan options … and how you can gain tax savings and long-term retirement benefits for you and your employees.
Calculator: Retirement Planning
