The following largely coincides with the guidance of the IRA’s information. The Information can change over time and your advisor and/or tax professional should be consulted.
Retirement can last a long time
- Retirement can last for 30 years or more?
- You might need up to 80% of your current annual income to retire comfortably?
Why should you set up a retirement plan, and what are some of the benefits?
A retirement plan has lots of benefits for you, your business and your employees. Retirement plans allow you to invest now for financial security when you and your employees retire. As a bonus, you and your employees get significant tax advantages and other incentives.
Business Benefits
- Employer contributions are tax-deductible.
- Assets in the plan grow tax-free.
- Flexible plan options are available.
- Tax credits and other incentives for starting a plan may reduce costs.
- A retirement plan can attract and retain better employees, reducing new employee training costs.
Employee Benefits
- Employee contributions can reduce current taxable income.
- Contributions and investment gains are not taxed until distributed.
- Contributions are easy to make through payroll deductions.
- Compounding interest over time allows small regular contributions to grow to significant retirement savings.
- Employee has an opportunity to improve financial security in retirement.
Examine the Future Retirement Income from potential savings in the following graph.
Source: Calculations by Adviceon
How do you set up a plan?
A good place to start is by contacting a tax professional familiar with retirement plans or an advisor and/or a financial institution that offers retirement plans.
Establishing your Employee Plan
You take the necessary steps to put your plan in place. Depending on the type of plan you choose, the administrative steps may include:
- Adopting a written plan
- Arranging a funding plan for the plan’s assets
- Notify eligible employees about the terms of the plan
- Developing a recordkeeping system.
Operating your Employee Plan
You want to operate your retirement plan so that the assets in the plan continue to grow and the tax-benefits of the plan are preserved. The ongoing steps you need to take to operate your plan may vary depending on the type of plan you establish. Your basic steps will include:
- Covering eligible employees
- Making contributions
- keeping the plan up-to-date with retirement plan laws
- managing the plan assets
- providing information to employees participating in the plan