Portia: This is Portia Bingham. I'm talking with Melaney Partner about the retirement plans.
Melaney, what are the benefits of offering a retirement plan to employees?
Melaney: A retirement plan has benefits for everyone - the employer, the business, and of course, employees.
Retirement plans are appealing to business owners for many reasons. One: contributions are deductible. Two: retirement plans attract and retain better employees. And three: your assets grow tax free with compounding interest.
You may also be eligible for tax credits or incentives for starting a retirement plan.
Portia: Those are good points. How does an employer pick the right retirement plan to offer?
Melaney: There are several plans to choose from, depending on your business and your employees' needs.
One major advantage of a payroll deduction IRA is that it's easy to set up and maintain, and can be offered to all employees. Also, employees can decide how much to contribute at any time.
A SIMPLE IRA plan is easy to set up. It allows for employers to match employee contributions up to three percent, or elect to contribute two percent of compensation. Employees decide how much they'd like to contribute with this plan.
Portia: What should employers do to ensure they are in compliance with the retirement plan they've chosen?
Melaney: Keep in mind that tax law changes may affect your plan. Be sure to stay up to date with any tax laws that apply to your plan.
At least once a year, read your plan. Review the key provisions and ensure the operation of the plan follows the term of the plan.
Perform a periodic review of your plan and get any mistakes corrected sooner, rather than later.
Make sure that the correct data is getting to those who operate your plan. Review the plan investments on a regular basis, and ensure fees are appropriate. You should also make sure the plan contributions and distributions are occurring, how and when, they're supposed to.
Portia: What retirement plan resources are available for more information?
Melaney: We have several good publications on our Web site. Publication 4118, titled Lots of Benefits when you set up a retirement plan, is a good starting point for general information and references.
Publication 3998, Choosing a Retirement Solution for your small business, has a great chart that compares advantages, eligibility, contributor options and vesting for each type of plan
Finally, Publication 4460, The Retirement Plan Products Navigator, identifies resources that will help you choose and maintain the right retirement plan for your small business.
Visit IRS.gov and on the top of the page, click on the tab that says, Retirement Plans Community.
Portia: Thank you, Melaney. I've been talking with Melaney Partner of the IRS. This is Portia Bingham.
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