Leave Your Mark Here

You, as a business owner and employer, would have to set up and administer your own small business retirement plan for yourself and your employees.

It can be costly to set up a retirement plan but if you do some homework, you can get it cheaply coupled with a number of advantages too such as:

• Employer's contributions to a retirement plan is a tax deductible expense
• A sound retirement plan can attract and retain qualified and valuable personnel
• A tax credit of up to $500 is available to small business (normally less than 100 employees) for the cost of creating or maintaining an employee retirement plan
• Enhances your business's credibility and integrity
• Increases your employees' loyalty

You could go for a variety of plans such as:

1. Defined Contribution Plan

It uses an allocation formula to specify a percentage of contribution made by employees. Say, your employees can voluntarily deduct a certain portion of their salaries, in many cases before taxes, and place the money into a qualified retirement plan of your company, where it'll grow tax-deferred.

You as an employer can also match the contribution your employees make.

2. Defined Benefit Plan

You as an employer, determine a desired level of benefits to be paid upon your employees' retirement, using a fixed monthly payment or a percentage of compensation and then you (the employer) contribute to the plan yearly according to a formula so that the benefits are available when needed.

The amount of annual contributions is determined by an actuary, based upon the age, salary level, and years of service of your employees, plus prevailing interest and inflation rates. You'll bear the risk of providing a specified level of benefits to your employees when they retire.

This plan loses its attractiveness attributed to the fact that nowadays employees became more mobile, and few are willing to commit their entire working lives to a single employer in order to gain a pension.

Employers, too, began moving away from this plan because of the financial pressure involved in funding them.

3. Simplified Employee Pension (SEP) Plan

This is an employer-funded retirement account that allows a small business to direct at least 3% and up to 15% of each of your employee's annual salary, to a maximum of $30,000, into tax-deferred individual retirement accounts (IRAs) on a discretionary basis.

It's easy to set up and inexpensive to administer, as you simply make contributions to IRA initiated by your employees. Your employees would have to make investment decisions regarding their own IRAs. That way, you avoid the risk and cost involved in accounting for employee retirement funds.

Besides, you've the flexibility to make large percentage contributions during good financial years and to reduce contributions during leaner times.

SEP plan applies to all types of business entities, including proprietorship, partnership and corporation. Employee's eligibility: aged 21 or older with at least 3 years of service in your company and a minimum level of compensation.

4. Savings Incentive Match Plan For Employees (SIMPLE)

This plan comes in 2 forms: SIMPLE IRA and SIMPLE 401k.

Both provide an easy, low-cost way for a small business and its employees to contribute jointly to tax-deferred retirement accounts.

An IRA or 401k set up as a SIMPLE account requires you, the employer to match up to 3% of an employee's annual salary, up to $6,000 per year. An employee is also allowed to contribute up to $6,000 annually to his/her own account.

If you set up a SIMPLE, you can't offer any other type of retirement plan.

It's best you choose the SIMPLE IRA option, as the SIMPLE 401k proves more expensive than a regular 401k due to the company matching requirements.

OK, Which Plan Is For You And Your Business?

I would say you should carefully examine your priorities when deciding on a small business retirement plan for yourself and your employees.

If your main concern is to minimize administrative cost, a SEP plan would be your best bet.

If you count upon key older employees, a defined benefit plan would help reward and retain them.

If you go for a long time horizon until retirement, you would probably do best with a defined contribution plan.

If you want your employees to fund part of their own retirement, you should go for a SIMPLE or a 401k plan.

Due to her strong yearning to retire early in life, Cecelia Yap has been researching on the subject of retirement. She has found the most "viral" way to grow her retirement nest egg and you too can do what she does, here: http://www.perfect-body-toning.com/my-passion.html

AP - Wall Street headed for a higher close on Wednesday with investors optimistic after a report showed an unexpected increase in private sector jobs, data that helped the market brush off a sharp jump in oil prices. The Dow Jones industrials rose nearly 170 points.