As a business owner, it’s essential to weigh the pros and cons of every decision.
And deciding whether to offer your employees a retirement plan is no different. On the one hand, there are many benefits to consider, both tangible and intangible. But on the other hand, a retirement plan comes at a cost, and to make it worthwhile, the benefits must outweigh the costs.
In addition to the various costs and benefits, it’s essential to know your options and choose the best retirement plan for you, your employees, and your business. For example, some owners may find that a safe harbor 401(k) plan is the best option for their situation. But, others may want to add a profit-sharing component to help incentivize certain employees or key performance metrics. Whatever the case, when deciding whether to offer your employees a retirement plan, consider the following:
Here Are 3 Reasons to Offer Your Employees a Retirement Plan
1. YOU CAN ATTRACT AND RETAIN TOP TALENT
Retirement plans consistently rank as one of the most valued benefits an employer can offer, often outweighing other benefits like increased compensation or paid time off.
In fact, according to data from BusinessWire, 68% of employees say pension or retirement benefits are a decisive factor in accepting a job, and 62% say they’re a decisive factor in staying with a job. In other words, if you want to attract and retain valued employees, you must consider their financial future.
This can be very valuable for your business, as it can help reduce turnover and the costs associated with hiring, training, and recruiting new employees. On top of that, it signals to your employees that you care about them and their future retirement needs. Therefore, this can be a great way to strengthen your relationship with your employees.
2. THERE ARE MANY TAX BENEFITS TO CONSIDER
Next, there are many tax benefits to consider when offering a retirement plan.
First, all plan expenses are deductible as business expenses. This means that all startup costs, ongoing administrative fees, and any employer-matching contributions will help to lower your taxable business income for the year. This can be a valuable offset to the cost of your 401(k) or another retirement plan, as it can help you save money when taxes are due.
In addition, there are certain tax credits available to help offset some of the costs. These credits are more valuable than a deduction because they can result in dollar-for-dollar tax savings up to a certain amount. Visit the IRS website for specific details, including eligibility requirements and limitations.
Lastly, as an owner and retirement plan participant, you can reduce your tax liability by contributing to your retirement plan. By contributing pre-tax dollars to your 401(k) or another retirement plan, you can lower your taxable income and create valuable tax savings. This can be especially important for high-earning business owners in high marginal tax brackets.
For example, if you’re a high earner in the 32% tax bracket, every dollar you contribute to your 401(k) will save you 32 cents in taxes. So, if you can max out your 401(k) contribution for the year, $20,500 in 2022 or $27,000 for those 50 and over, you could reduce your tax bill by $6,560 or $8,640, respectively.
3. YOU CAN BENEFIT FROM THE PLAN AS WELL
Lastly, one of the significant benefits of establishing a retirement plan in your business is that you can fund and secure your retirement in the process.
Unfortunately, many business owners fail to save enough for retirement. That’s because some focus on reinvesting all earnings into their business and don’t prioritize retirement savings, while others are banking on selling their business to fund their retirement.
But, according to surveys from Investment Bank, only 30 to 40% of businesses listed for sale actually ever sell. This means most business owners must have saved and invested over the years to fund their ideal retirement lifestyle. So, you can begin contributing and funding your future retirement by establishing a retirement plan for your business.
As a good rule of thumb, many financial experts recommend targeting a 20% savings rate to stay on track for traditional retirement. However, your ideal savings rate may be higher or lower depending on various factors like your age, existing savings, time until retirement, and the possible sale of your business. But the vital thing to remember is that saving for retirement is essential for everyone, including business owners.
TrueNorth Retirement Services Is Here to Help
If you’re interested in working with TrueNorth’s Retirement Team to help understand the benefits of establishing a retirement plan for your small business, then TrueNorth Retirement Services is here to help. We also offer defined benefit plans for self-employed individuals.
TrueNorth Retirement Services is one of the leading retirement planning companies in Utah and Idaho, with the best 401k advisors. At TrueNorth Retirement, we are committed to assisting our clients in accumulating wealth and maximizing the value of their retirement plans! Contact us to schedule a consultation.