The Savings Investment Match Plan for Employees (SIMPLE) Individual Retirement Account (IRA) combines the power of payroll contributions with the simplicity of an IRA for small business owners and their employees.
Best if you
- Have 100 or fewer employees
- Do not maintain any other employer-sponsored retirement plan
- Have employees who earned at least $5,000 in the preceding year and expect to earn at least that amount in the current year
- Would like to have multiple investment choices
- Are prepared to choose one of the contribution methods on a yearly basis
- Would benefit from a plan with no filing requirements
- SIMPLE IRAs are relatively easy to set up and run
- Contributions are tax-deductible for employers
- Employee contributions are pre-tax
- Earnings grow tax deferred
- Employers can choose a matching feature or a percentage of wages
- Matching employer contributions belong to the employee immediately and can go with them if they leave
- Employers must contribute up to 3% in matching contributions or 2% in non-elective contributions.
- Employees can contribute up to 100% of their compensation up to the designated annual cap. Those age 50 and older can contribute another $3,000 per year.
- Minimum required distributions start at age 70½. There is a 10% penalty for withdrawals made before age 59½. There is a 25% penalty for withdrawals made in the first 2 years of plan participation.
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Retirement planning considerations for your small business
How do you decide when to invest in your retirement savings over your business? Here are some ways to help you make the best choices about retirement as a business owner.
Decide what you want your retirement to look like
What's your vision of retirement? Do you want to travel the world, or live near family and friends who you can visit regularly? Do you want to live where the action is—or far from it? Do you want to work part time to make extra money, or just simply live off your savings? Write down exactly what you plan to do in your future—don't leave anything out. That way, you can set goals to meet your vision.
Create a retirement plan that suits you
Once you determine what your retirement will look like, you should create a plan to get there. One of the best ways to do this is to meet with a trusted financial advisor. You'll work together to establish savings goals and even tax strategies to maximize deductions and reduce your personal and/or business taxes.
You should save in a variety of ways—don't put all your eggs in one basket. Consider investing in money market accounts, certificates of deposit and individual retirement accounts (IRAs). IRAs like the Simplified Employee Pension Plan (SEP) and the Savings Investment Match Plan (SIMPLE) are inexpensive to implement and provide tax advantages to help you save for retirement. This is where the expertise of a financial advisor will really come into play.
Start saving early
The sooner you start saving for retirement, the better. Decide on an amount you can contribute monthly and then consider it a required business expense (so you'll have no excuses for not saving). You may even consider setting up automatic contributions on certain days so that you never see the money in your regular business accounts. Once it becomes a habit, you won't think twice about using that money for anything else—plus, you'll have the peace of mind that you're proactively taking care of your future.
Plan to sell
When would you consider selling your business? Will you continue to be involved in the business after retirement? How old would you like to be when you retire? These are all questions you'll want to consider in selling your business.
Also, do you have someone in mind who may want to buy the business? If so, start the conversation early to find out if he or she is as interested in the business as you are. If they're not, consider how to find the best buyer for your business. Most importantly, make sure you prepare your business to operate without you—and train your staff accordingly.
You should also consider what you'll do if the financial environment adversely affects the value of your company. Will you work later into life or sell earlier while business is good? Make sure to plan for different contingencies so you don't find yourself in an unexpected situation.
Are you ready?
Whether or not you plan to retire from your business, it's a good idea to have a plan in place to protect your future—especially if something happens where you can't work anymore. Creating a retirement plan that diversifies your wealth will bring you peace of mind and allow you to focus on the business at hand.
Tools for managing your small business
As a business owner, you continually work to improve your offerings, including using advances in technology. Consider how technology can help you manage your business and maximize your success.
Protecting the information in your computers is critical. In fact, in some states and certain industries, it's a legal requirement. To ensure you have this protection in place, you'll need up-to-date versions of anti-virus, anti-spyware, and anti-malware software. If you're uncomfortable purchasing or updating these software products, consider hiring an IT specialist to help.
The right accounting software can save you time and money. You may still want to hire an accountant for certain purposes, but using accounting software (like QuickBooks® or Quicken®) can give you a quick and accurate view of the financial state of your business at any time. Plus, you can quickly send invoices and create financial reports.
Today, many project management applications are cloud-based. These real-time workspaces let employees and outside partners keep an eye on every detail of a project, with some more advanced apps allowing you to generate reports, capture issues, and integrate invoicing and billing.
To find the right tool for you, talk to your team about the features that would be most useful. That way, you can find the system most likely to help you increase efficiency, lessen frustration, and improve productivity—ultimately reaching your business goals.
Hiring employees can be a complex process, especially for small businesses. Conducting background and reference checks, verifying employment, skills testing, drug screenings, and verifying education are all time-consuming but necessary steps for hiring the right person. Using hiring tools such as automated resume screening, online recruiting sites, social media apps (like LinkedIn), and referral programs, will help you expand your team efficiently and effectively.
Marketing your business
In today's market, you'll need to find ways to improve your email marketing, website, and overall social media presence. There are many inexpensive options to help you market your business and stay relevant. Check out complete marketing solutions like Hootsuite®, Trello®, and HubSpot®—these services give you online project management, social media content, and online website and sales support. Make a list of what you need and then find the best fit. The key is to find the right tool at the right price for your needs.
File sharing services
Your team can post, share, and edit all kinds of documents using a cloud-based file sharing service. It's a great way to collaborate with co-workers, partners, and clients, from any device or location. You'll find these tools to be more efficient than emailing documents back and forth, and they'll help you stay current on pending projects.
There are many tools available to help remote workers be productive and feel connected—from something as simple as Skype® to more robust products like HighFive®, Evernote Work Chat, Slack®, or iDone. Tools like these will help your remote team increase productivity, job satisfaction, and retention rates.
What tools are right for your business?
The answer to this question depends entirely on your needs. Evaluate where you could be more efficient, or where you could improve communication. Also, consider how to reach your customers better and protect sensitive information. Then, take a closer look at the tools others in your industry or community use.
Taking advantage of the latest business tools will help you not only be successful now, but set you up for a brighter future.