Small Business Plans

For small businesses, costs are always an issue. Small employers don't have the resources that large enterprises do. However, they have to compete against larger organizations for good employees. As a result, many small businesses will offer plans that help people save for retirement while keeping costs low. SIMPLE IRAs and SEPs allow employers to offer incentives with very little administrative cost.

SIMPLE IRAs and SEPs

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is a plan offered by businesses with no other retirement plans and with fewer than 100 employees. As in 401(k) plans, your contributions and earnings are tax-deferred. You can contribute up to $10,500 a year, and the employer must either match 100 percent of your contributions, up to 3 percent of your salary, or contribute 2 percent of compensation for each eligible employee, even those who don't contribute to the plan.
A Simplified Employee Pension (SEP) IRA is similar to a SIMPLE IRA, except that only your employer can contribute. The disadvantage of this plan is that you have no control over how much goes into your plan because you can't contribute any of your own money. However, if you're self-employed, you're the employer and the employee at the same time, so you get to control things. The limit on employer contributions is 25 percent of your compensation up to a maximum of $45,000. With both the SIMPLE IRAs and the SEP IRAs, you can still invest in a traditional or Roth IRA.

Solo 401(k) Plans

Solo 401(k) plans are among the most powerful options available to small businesses. However, they only work for a one-person (or family-only) business. They share many of the characteristics of a standard 401(k) plan, including the ability to take loans. However, they are less expensive to administer.
If you do any freelance or contract work, consider opening a Solo 401(k) plan. In addition to your “salary deferral” contributions, you can give yourself a profit-sharing contribution of up to 25 percent of compensation. In other words, you can contribute the same amount as you would to a SEP, and then some.

Other Retirement Plans

Depending on the goals of an organization, there are plenty of other retirement plan options available. The bosses get to pick who they'd like to reward, and how, and then find a plan that does what they want. Nonquali-fied plans and other retirement benefit plans may be available to you if your skills are in high demand or if your employer is creative. For example, DB(k) plans provide a small pension-like guaranteed income stream, along with the ability to save money as you do in a 401(k). Other plans might promise you a lumpsum payout every ten years or so.