Choosing A Retirement Solution for Your Small Business

CHOOSING for Your A RETIREMENT SOLUTION Small Business Choosing a Retirement Solution for Your Small Business is a joint project of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the Internal Revenue Service. To view this and other EBSA publications, visit the agency’s website at: www.dol.gov/ebsa. To order publications or request assistance from a benefits advisor, contact EBSA electronically at: www.askebsa.dol.gov. Or call toll free: 1-866-444-3272. Choosing a Retirement Solution for Your Small Business (IRS Publication 3998) is also available from the Internal Revenue Service at: 800-TAX-FORM (829-3676). (Please indicate catalog number 34066S when ordering.) This publication will be made available in alternative format to persons with disabilities upon request. Voice Phone: (202) 693-8664 TDD* phone: (202)

501-3911 This publication constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996. It does not constitute legal, accounting, or other professional advice. Starting a retirement savings plan can be easier than most business owners think. What’s more, there are a number of retirement programs that provide tax advantages to both employers and employees. Why Save? Experts estimate that Americans will need 70 to 90 percent of their preretirement income to maintain their current standard of living when they stop working. So now is the time to look into retirement plan programs. As an employer, you have an important role in helping America’s workers save. A Few Retirement Facts Most private-sector retirement vehicles are either By starting a retirement savings plan, you will help Individual Retirement Arrangements (IRAs), defined your employees save for the future. Retirement plans contribution plans, or defined benefit plans. may also help you attract and retain qualified employ- ees, and they offer tax savings to your business. You People tend to think of an IRA as something that will help secure your own retirement as well. You can individuals establish on their own, but an employer establish a plan even if you are self-employed. can help its employees set up and fund their IRAs. With an IRA, the amount that an individual receives at retirement depends on the funding of the IRA and the Any Tax Advantages? earnings (or losses) on those funds. A retirement plan has significant tax advantages: Defined contribution plans are employer-established q Employer contributions are deductible from plans that do not promise a specific amount of benefit the employer’s income, at retirement. Instead, employees or their employer q Employee contributions (other than Roth (or both) contribute to employees’ individual accounts contributions) are not taxed until distributed to under the plan, sometimes at a set rate (such as 5 the employee, and percent of salary annually). At retirement, an employee q Money in the plan grows tax-free. receives the accumulated contributions plus earnings (or minus losses) on the invested contributions. Any Other Incentives? Defined benefit plans, on the other hand, promise a In addition to helping your business, your employees specified benefit at retirement, for example, $1,000 a and yourself, it is easy to establish a retirement plan, month. The amount of the benefit is often based on and there are additional reasons for doing...

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