by Jac M. Arbour CFP®, ChFC®
President, J.M. Arbour Wealth Management
It’s a great question. And the answer is usually straight forward.
For an employee, the idea of not going to work anymore after a certain age, yet still receiving an income to live life on their terms, is the specific purpose of a retirement plan. Solo Ks, SIMPLE IRAs, SEP IRAs, Traditional and Roth IRAs, 403(b)s, and 401(k)s are all designed to do just that. Each of these plans has its differences, and in this month’s column I will share some key considerations to help you decide which type of plan may be best for your employees and your company.
Contribution amounts: Each of the aforementioned plans allows a different total amount of deferrals, or contributions, annually. IRAs have a maximum contribution of $6,000, SIMPLE IRAs are limited to $12,500, and 401(k)s and 403(b)s allow up to $19,500 annually. In addition to these elective deferral totals, each plan also offers “catch-up” provisions that allow people ages 50 and over to contribute a little extra. When deciding which plan type is best for your company, it is important to know how much you and other highly compensated employees would like to contribute each year. The answer to the question, “How much would you like to contribute?” is a great place to start.
Employer match: Do you want to help your employees save for retirement and incentivize them to grow within their position at your company? If so, an employer match can serve the purpose. It is widely known that benefits in general, including 401(k)s with or without employer matches, increase attraction and retention rates of employees. When companies help their employees get to where they want to go, everyone wins.
Profit sharing: Not all retirement plans offer this feature, so choosing the right type of plan design is important if you want to institute profit sharing. This can be a great way to say an additional “thank you” to your employees. Furthermore, when the philosophy of your company is “the better we do, the better you do,” more often than not, you will see enhanced camaraderie amongst your workforce. In business, there are not many things stronger than a solid team, aimed at a single vision, firing on all cylinders.
Company size: How many employees do you have? If you have 100 or less, a SIMPLE IRA might do the trick, as long as you plan to contribute less than the max, mentioned above. If you have more than 100 employees, you cannot start a SIMPLE IRA. Basic rules like this can narrow down your choices quickly. Once you know the right plan type, you can dive into the weeds to build out the inner workings of your plan.
These ideas are just a few of the many things to consider. To explore all the factors and derive specific answers to which plan is best for your company, reach out to an advisor or firm that guides people through these decisions. It is a lot simpler than you might think, if you have the right people on your team.
See you next month.
Jac Arbour CFP®, ChFC®
Jac Arbour is the President of J.M. Arbour Wealth Management. He can be reached at 207-248-6767.
Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.