Choosing a Retirement Plan for Your Business

Friday, June 27 at 07:15 AM
Category: Business Banking

As a small business owner, you have many retirement plan options. When comparing, the rules can get complex. However, try to remain patient when choosing a plan or combination of plans, because this is something that shouldn’t be taken lightly. First step — consult with a retirement plan specialist. They will ease the complexity and guide you towards the appropriate retirement plan that best fits the needs of you and your business. This guideline provides some basic information and can help make the discussions with the professional more effective.

Why have a plan?
For the owner, a qualified retirement plan can be an advantageous way to accumulate wealth.  Contributions to the plan can be tax-deductible, earnings within the plan are tax-deferred and there can be flexible ways to take distributions from the plan.

For the business, a good, solid retirement plan is very attractive to potential employees. Providing a retirement plan can be a part of the total employee compensation package, and the right plan can help attract, retain and motivate your employees.

How much does it cost?
Your cost for a retirement plan will take two forms – company contributions to the plan on behalf of employees and yourself and the cost of establishing and administering the plan. The chart below describes some of the funding features of different types of plans. Choosing a plan that allows for employee deferrals without requiring significant company contributions may the option that provides the best of both worlds – permitting the accumulation of larger amounts of money and keeping the company costs low.

The administrative costs of plans vary. Some plans are as simple as employees having IRAs to receive contributions, while others require annual IRS filings and audits. Be sure to discuss administrative costs with your retirement plan specialist.

How much responsibility do you as the manager want?
Once money is contributed to a plan, it must be managed and someone must make the investment decisions. This may mean the trustee of the plan must make investment decisions (or choose investment managers) or have a plan that enables each participant to manage their own funds. More and more plans are going this “self-directed” route.

Brief summary of plan types







Self-employed individuals, business owners, those with self-employment income

Self-employed individuals, business owners, those with self-employment income

Businesses with 100 or less employees not offering other retirement plan

Any public or private company.  Usually for companies with more than 25 employees


Easy to set up and maintain

Highest contribution limits

Salary reduction with lower administration

More features like vesting and loan provisions

Contribution Source(s)

Employer only

Usually, employer only

Employee wage deferral and employer contributions

Mostly, employee wage deferral and optional company contributions

Annual Contribution Limits

Up to 25% of compensation, with maximum of $50,000 (2012)

Up to 25% of compensation, with maximum of $50,000 (2012)

Employee:  Up to 100% of wages, $11,500 (2012) and up to $14,000 if age 50 or over.


Employer:  EITHER, match employee contributions up to 3% of wages (maximum of $7,350 (2012); OR, 2% of employee’s wages to $4,900 2012)

Employee:  Could be up to 25% of wages up to $17,000 (2012) and up to $22,500 if age 50 or over.


Employer:  Up to 25% of wages, up to maximum of $50,000 (2012)



Vesting schedules are possible

Employer and employee amounts are immediately vested

Employee amounts are vested immediately.  Employer amounts can be subject to vesting schedules

Administrative Issues

No employer filings required

Form 5500

No employer filings required

Form 5500 and special discrimination testing required

The right retirement plan can serve many purposes. Be sure to investigate all the possibilities to make sure your plan accomplishes what you want. The services of a qualified retirement plan specialist can be very valuable in reviewing your options.

Arvest Asset Management can help you choose the right plan to fit your business’ needs. Whether you need a whole new plan or would like to evaluate your existing plan, they can help weigh the benefits of each plan and help implement the plan you choose. Talk with an Arvest Asset Management client advisor today.

Tags: Arvest Biz, Business Banking
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