By Steve Self, special to bizNEVADA
As a business owner, it’s exciting to reflect on the past year and prepare for all that’s ahead in 2019. Yet, with the calendar change comes the realization that the tax filing deadline may be just around the corner. “Have I done all that I could to minimize my 2018 tax bill?” you may wonder. Establishing a business retirement plan may be one way to save on taxes – while providing your employees a valuable benefit. There are several plans from which to choose. One option may allow you to save on taxes for 2018, while additional options may benefit you in 2019.
Your opportunity for 2018
For 2018 tax considerations, your plan options are limited to a Simplified Employee Pension (SEP) plan which can still be set up and funded for the prior tax year.
A business can establish and fund a SEP plan at any time, but if contributions are going to be made for a prior year, the plan must be established and funded no later than the employer’s tax filing deadline, including extensions.
Simplified Employee Pension (SEP) plans are employer-funded plans in which an employer makes contributions to an employee’s SEP IRA (individual retirement account or individual retirement annuity).
Your opportunity for 2019 and beyond
January may be a good time to think about setting up a business retirement plan for 2019 and beyond. However, before you start a new retirement plan for your business or change the type of plan you currently offer, it’s important to evaluate the features and benefits of each option carefully.
There are six different types of business retirement plans – from simple to complex they include SEP IRA, SIMPLE IRA, Individual(k), 401(k), Profit Sharing and Defined Benefit plans. The rules vary from plan to plan, and each has its own set of features and benefits that it may provide depending on your business structure, number of employees and the goals you are trying to achieve. The SEP IRA is an employer contribution plan. The Simple IRA is a retirement plan that allows employees to voluntarily contribute to their plan with a set contribution match by the employer – It is relatively simple to document and administer. The 401(k), Individual(k), Profit Sharing and Defined Benefit plans fall under ERISA rules which means different reporting requirements and possibly more cost to administer but may allow employers and employees to defer higher amounts than the Simple IRA and SEP IRAs.
Maybe you established a retirement plan for your business in the past but aren’t certain that it is still the appropriate option for your company or your employees. As your business grows, it may be advantageous to consider other types of plans that may offer additional benefits. Depending on your current plan, there may be various rules or restrictions that warrant consideration so if you plan on making changes; you will want to start the conversation early in the year to understand what those rules are.
Another consideration for a Business Retirement Plan beyond the financial concerns is the ability to attract and retain employees in a competitive hiring environment.
The grid below provides a few of the key features for each type of plan and contribution limits for 2019:
If you are considering retiring or transitioning ownership of your business in the near-future, a business retirement plan may offer additional ways to defer income from taxes that may make it advantageous to consider establishing a business retirement plan as part of your exit strategy.
There are many choices for business retirement plans. If you would like to know which of the plans may work better for your business, consult with a financial advisor. A professional can provide perspective based on your business goals for today and tomorrow while being mindful of your individual financial goals.
Steven G. Self, CRPC® is a Financial Advisor with Ameriprise Financial Services, Inc. in Reno, NV. Self specializes in fee-based financial planning and asset management strategies and has been in practice for 28 years. To contact him, visit https://www.ameripriseadvisors.com/steven.g.self/, stop by the office at 5305 Reno Corporate Dr. Suite 200 in Reno or call 775.236.2454.
The views expressed here reflect the opinions of Steven G. Self as of December 11, 2018. These views may change as the market, or other conditions change. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Past performance does not guarantee future results and no forecast should be considered a guarantee either.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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