Take Advantage of Setting Up a Retirement Plan Now

Given the economic turmoil of recent years, an increasing number of smaller businesses are exploring the benefits of establishing retirement savings plans. With the end of the year less than two months away, the time is ideal to begin exploring options to set up a plan that still creates significant tax advantages and other benefits for 2011.

Retirement plans allow business owners and their employees to invest in the future for financial security upon retirement. As a bonus, there are significant tax advantages and other incentives for contributing to a qualified retirement plan. Employer contributions are tax-deductible, and certain plan designs will allow a higher percentage of the contributions to go to the employee owners. The amount of retirement plan assets that can be protected from creditors can be unlimited.

In addition, certain businesses may receive a tax credit of 50 percent on the first $1,000 in administrative and/or education costs associated with establishing a new plan. Plus, plan assets grow tax-free until they are distributed, and the interest compounds over time. Finally, a retirement plan can attract and retain good employees, consequently reducing new employee training costs.

There’s plenty of upside for employees too. Their contributions are not subject to federal income tax (although they are taxed upon distribution), and their investment earnings accumulate in the plan tax free until distribution. Contributions can be made easily through payroll deductions, and retirement assets can be rolled into a different employer’s plan when employees change jobs.

For certain taxpayers, there may be a tax saver’s credit of up to 50 percent for individuals within certain income brackets. Employees who begin investing early can achieve their long-term retirement goals.

Business owners can benefit in a number of ways when they invest some time into learning about the specific ways they can put money aside for their and their employees’ retirement. Depending on the type of plan chosen, the range of administrative steps to establish a retirement plan may vary.

Now is the time to begin reviewing different types of retirement plans that can be established and begin working for owners and employees alike before year-end. Owners can adopt a written plan and determine the appropriate investment vehicles to fund plan assets. They also can determine the annual employer funding level and give eligible employees plenty of time to learn about the new opportunity that will be available to them.

For more information on setting up a retirement plan before the end of the year, contact your Meaden & Moore representative or Karin Spoerke at (216) 241-3272 or kspoerke@meadenmoore.com.