When you think about setting up a corporate retirement plan for your employees, do you stress about the amount it will cost you? If you’re like most people, your answer is probably ‘yes’, but the good news is that with a corporate retirement plan such as a 401(k) in place, you will not only be adding tremendous value to your employees but also to your business and yourself as the business owner.
Corporate retirement plans come in many different shapes and sizes. The most traditional plan is a 401(k), which enables employees to contribute their own dollars towards retirement. According to the IRS, employees contribute up to the limit of $18,500 to their 401k for the 2018 tax year ($18,000 limit in 2017). The IRS also allows employees at or over the age of 50 to make an added “catch up” contribution of $6,000 per year, making the total maximum contributions $24,500 in 2018.
If your company is succeeding financially and would like to contribute to your employees’ retirement, you can initiate a Profit Sharing 401(k) plan with tax-deductible contributions. This plan enables your company to give a discretionary amount of its profits to your employees. If your company has a bad year, contributions can be as flexible as you want them to be, meaning that there is no pressure to maintain a specific contribution. If you decide to give 3% to every employee through a profit sharing plan, you can significantly increase the amount you put towards your personal retirement through the combination of the profit sharing contributions through a 401(k) plan. The IRS maximum when considering both the employee contributions and employer profit sharing contributions is a grand total of $55,000 in 2018 and $61,000 including a catch-up (50 or older).
Additionally, savings into a retirement plan can be a great strategy to reduce taxable income. The costs of the plan, which are minimal, can save you on taxes in the long run and most importantly, help you retain employees. You are also allowed up to a $500 tax credit for half of the administrative costs in each of the first three years of the 401(k) plan. So while implementing a corporate retirement plan may seem expensive at first, it benefits your company in the long run as it attracts and retains better employees while giving you significant tax advantages.
With over 20 years of experience, we at Fogel Capital Management have helped many employers start their corporate retirement plans with great success. Our plans are managed with analysis of data, vast knowledge, and expertise. Call us today at (772) 223-9686 for a free consultation to learn more about what plan options exist for your business.