Why you need a Michigan Business Retirement Plan for Employees

Michigan Business retirement

Michigan Business retirement

Are you a small business owner in Michigan? Do you have a retirement plan for your employees? If not, you might miss out on a valuable benefit that could help attract and retain experienced employees. One of the most significant benefits that job seekers consider when looking for a job 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. Contributions to a tax-qualified plan are not subject to current federal income tax. Earnings grow tax-deferred until withdrawn, and taxes are payable when the participant receives the benefits. 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 to them. According to the 2013 Small Employer Retirement Survey conducted by EBRI, 22 percent of those not offering a plan said they were aware of states launching programs requiring employers without a retirement plan to automatically enroll their employees in an individual retirement account (IRA). 

Business Retirement Contributions

One advantage of the SEP plan is that it is easy to establish and maintain. 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 whether you will contribute to the plan and the contribution amount 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 your business has 100 or fewer employees, you are eligible to begin a SIMPLE IRA by completing IRS Form 5305-SIMPLE. Employee salary reduction contributions and employer contributions fund SIMPLE IRAs. As the employer, you 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 withdrawal time. 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 who will stay on the job can be difficult. Fortunately, retirement plans are 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.

Lastly, Michigan employers are responsible for delivering  Michigan health forms to employees.