Retirement planning is essential

As the economic noose continues to tighten, small-business owners are feeling the pinch in more and more ways. A new survey from Harris Interactive, a global market-research firm, shows that 53 percent of small-business owners have cut what they are setting aside for retirement compared to a year ago. And the numbers may only get worse.
Meanwhile, 57 percent of business owners say that developing new business has become their top business challenge, and 40 percent say the current financial state of their business is worse than a year ago.
Fewer business owners are setting up plans and those who have them are shrinking contributions. About 11 percent are reducing or eliminating matches for their employees.
But here is the scariest part: Some 16 percent of business owners have found it necessary to take premature withdrawals (which can trigger taxes plus a stiff penalty) or borrow from their retirement accounts.
A bad economy won’t last forever, and having a plan in place makes you better positioned to attract and retain the best employees.
Retirement plan options for small business and the self-employed include:
• The Simplified Employee Pension Plan (SEP IRA) is a low-cost, low-maintenance account that’s great if you have just a few employees and want your business to contribute to their retirement. Employees are not allowed to contribute on their own. There are no plan documents, no IRS filings and you can vary contributions year to year.
• The SIMPLE IRA is a low-cost, easy-to-set up plan that allows employee contributions, but isn’t quite as attractive to the business owner.
Profit sharing plans let you set aside a portion of your business profits for yourself and your employees. Any business owner or self-employed individual can set one up. Contributions can vary year to year, and employees are not allowed to contribute.
• Defined-benefit plans are often considered best for business owners who want to build a large retirement nest egg quickly. Basically, you “define” the future benefit you want, and a plan pro will calculate the amount you can set aside now to reach that goal. Such plans are more expensive to set up and administer, but the ability to set aside far larger sums may be worth it.
Today’s most popular retirement plan is the 401(k), even for small business. Both employer and employee can contribute to a 401(k), up to the current annual limit of $15,500. Anyone 50 or older can contribute an extra $5,000 per year. •
Daniel Kehrer can be reached at editor@business.com.