401(k)
One of the most talked-about plans is the 401(k), and any company can sponsor this type of retirement savings account. For 2016, employees can put up to $18,000 into a traditional 401(k) plan, and employer/employee combined contributions max out at $53,000 per worker. Any worker over the age of 50 can contribute an extra $6,000 per year to the fund.
One advantage for employees is that they don?t …show more content…
An employer must contribute 3 percent of an employee?s annual compensation to match a worker?s contribution, or a business owner must make a 2 percent contribution for employees, based on an annual salary, for workers who choose not to defer any of their own money. An employer?s contribution does not count towards a worker?s annual limit, and employers can reduce their tax liability for their part of the …show more content…
If a worker makes more money, that worker earns a higher cumulative amount for an annual contribution. Another form of retirement plan makes it easy for employer to budget every year because you control the percentages given to each worker.
SEP
A simplified employee pension, or SEP, is a benefit controlled completely by the employer. Once you set up a SEP (also known as a SEP IRA) for an employee, there?s no annual filing for the IRS. You can contribute up to 25 percent of an employee?s income or a maximum of $53,000 per year to a SEP plan. If cash flow becomes an issue, an employer can change the contribution amount every year. For employers, the contributions are tax deductible.
One con to a SEP plan is that it can become costly when you add more employees as your business grows. The business owner or employer makes all of the contributions to this type of account, and every employee must receive equal percentage amounts for all eligible employees regardless of their income levels. Keep in mind that hiring more employees is a good thing, and a SEP plan can serve as a benefit to draw better workers to your