Why you need a Michigan Business Retirement Plan for Employees
Do you have a Michigan Business retirement plan for your employees?
If you are the owner of a small business, you probably understand the difficulties in finding and keeping employees with experience. There are many factors that an employee will consider when deciding where to work. One significant benefit is the availability of a tax-qualified retirement plan.
Two Main Types of Business Retirement Plans
- The Simplified Employee Pension (SEP)
- Savings Incentive Match Plan for Employees (SIMPLE)
These are the best business retirement plans available to employers. If a plan is considered tax-qualified, contributions are not subject to current federal income tax. Earnings grow tax-deferred until withdrawn, and taxes are payable when the participant receives the benefits. Generally, at retirement, the participant will be in a lower tax bracket and entitled to additional standard deductions at age 65.
Unfortunately, many employers are unaware of the tax-qualified retirement plans available. The 2013 Small Employer Retirement Survey conducted by EBRI indicated that 47 percent of business owners had not heard of SEP plans while an additional 26 percent had heard of them but knew little about them. The numbers for SIMPLE plans were 32 percent and 20 percent, respectively. An advantage of the SEP plan is the ease of establishing and maintaining the plan. Any business with one or more employees, including the owner/employee, may set up a SEP IRA. Employers can start the plan with IRS Form 5305-SEP, and the government does not require the employer to do a tax filing.
Business Retirement Contributions
As an employer, you decide each year:
1. Whether you will contribute to the plan, and
2. Employers control the contribution and the amount of the contribution to each employee’s SEP-IRA.
Employees are immediately 100 percent vested in the SEP-IRA proceeds.
A SIMPLE IRA is a salary reduction plan with little administrative paperwork. If you have 100 or fewer employees in your business, you are eligible to begin a SIMPLE IRA by completing IRS Form 5305-SIMPLE. Employee salary reduction contributions and employer contributions fund Simple IRA’s. You, as the employer, can either match the employees’ contributions dollar for dollar up to 3 percent of their salaries or contribute 2 percent of each eligible employee’s salary. Eligible employees become immediately 100 percent vested.
Employees may take withdrawals from a SEP or SIMPLE IRA at any time. However, they will generally be subject to a 10 percent tax penalty if they are under age 59½ at the time of the withdrawal. The tax penalty increases to 25 percent for SIMPLE IRA withdrawals made during the first two years the employee participates in any SIMPLE IRA.
Finding qualified employees that will stay on the job can be difficult. Fortunately, there are retirement plans available to make your business more attractive to job seekers. Speak with a qualified investment professional to discuss which plan may be appropriate for you.
Finally, Michigan employers are also responsible for providing Michigan health forms to employees.