With possible tax advantages for you and your employees, a careful decision can bring a great benefit
by Beth Kotz

As a business owner in the homecare sector, you help improve the quality of life for aging seniors in innumerable ways.

A rise in the nation’s retirement age population has brought strong growth to many small businesses in this industry, and the number of people in need of such services will only increase in the years to come.

Despite market growth, however, small homecare businesses continue to face a myriad of challenges as they strive to establish themselves as legitimate ventures. Few things are as daunting as building a business, but a strategic plan of action—aligned with your unique needs, goals and circumstances—will maximize both the wealth-creation potential of your enterprise and its sustainability long-term.

No two small businesses are the same. Each deals with its own particular requirements and operations, so it is important to choose a retirement plan that not only works for your employees but for your business structure as well. Give your small business the attention it deserves by starting a retirement savings plan for employees as soon as possible. There are many retirement plans available that offer tax advantages to benefit you and your homecare employees.

401(k) and Pension Plans

Planning for your own retirement can be difficult enough, but choosing retirement plans for your employees is even more overwhelming without the right tools. Research shows that Americans spend 20 years in retirement on average—making this time in life especially important to plan for. Setting up 401(k) and/or pension plans for your employees not only gives them security and peace of mind during their retirement years, but offers meaningful tax advantages to your business, as well. Any contributions you make to a small-business retirement plan for your organization are tax deductible.

Getting Started

When choosing the correct retirement plan for your small business, carefully weigh the advantages and disadvantages of each plan. Before you begin, it helps to create a list of everything you want and need so you won't be overwhelmed by the variety of options available. Some of the benefits to consider include tax-deferred growth potential, business deductions and tax credit lines for first-time plan offerings. Some plans are better for businesses with fewer than 100 employees, such as Simple IRA plans, while an SEP IRA is appropriate for small businesses of all sizes.

Advantages and Disadvantages

The three major types of small-business retirement plans include the Simple IRA, SEP IRA and self-employed 401(k) plans. SEP stands for Simplified Employee Pensions. These plans make it easy for employers to contribute a certain percentage for each employee, but yearly contributions are not mandated. SEP IRAs are generally low maintenance and do not come with setup or maintenance fees. The downside is that only employers can contribute to these plans.

A Simple IRA is a savings plan that was designed for small businesses. Simple IRAs are an excellent option for small businesses with teams of fewer than 100 employees, but they are only for businesses without any additional retirement plans in place. Under a Simple IRA plan setup, your employees can save money for retirement through payroll deduction. You have the option of contributing a flat rate of 2 percent of your overall employee compensation or matching employee contributions up to 3 percent. If you choose the flat rate, you may pay less if your employees contribute 3 percent or more of their compensation, but you must contribute even if they do not contribute at all. For this reason, many employers choose to simply match employee contributions.
401(k) plans come in multiple types and they are the most popular retirement plans available, largely due to their generous contribution limits. 401(k) plans allow employees to contribute to their plans as well, and you can choose to match those contributions. However, all employers who offer 401(k) plans are required to qualify annually with the IRS. Solo 401(k) plans are a great option for one-person operations. A solo 401(k) is similar to a self-directed IRA, but it has the highest annual contribution limits of any plan.

Safe harbor 401(k) plans require employer contributions to be vested immediately, meaning that your employees can access their funds as soon as they leave the company, though you still must be at least 59 ½ years of age to withdraw funds without a tax penalty. The greatest benefit to a safe harbor 401(k) for employers is that you do not have to qualify for it annually with the IRS. Simple 401(k) plans offer benefits for businesses with fewer than 100 employees, and they are also exempt from annual qualification testing.

When you offer sponsored retirement plans to your employees, everyone benefits. Despite the advantages and the many retirement plan options available, research shows that only 14 percent of small businesses offer retirement plans to employees. Even if you only have a few employees, you can receive significant tax benefits for offering retirement plans. These plans should be considered as part of your benefits package and used to attract and reward talented employees.

Business Succession Plans

According to the United States Small Business Administration, a large percentage of small-business owners are over the age of 50, which means that many are on the verge of retirement—or at least considering the process. A survey conducted by CNBC and the Financial Planning Association found that while 78 percent of today’s small-business owners would like to sell their businesses to fund their retirements, fewer than 30 percent have actually written a succession plan. A properly written business succession plan can ensure that the transfer of ownership goes smoothly without disrupting the flow of operations. Whether you choose to pass the business on to a family member or a current employee, a succession plan allows you to establish a comfortable time frame for the transfer of authority.

During the planning stages of transition, it is helpful to meet with your employees to make them aware of the succession. This will help ease the transition as your successor takes over your responsibilities. You should also notify any investors and stakeholders well before you actually make the change. Another major part of any successful succession plan is thinking about how the transition will affect your clients. You may choose to tell them you will be transferring the business on your own or with your successor. Either way, keeping the employees, clients and investors who care about your business informed is a key part of the succession process.

From choosing a retirement plan to choosing a successor, planning the logistics of retirement will help smooth the process for everyone. Employees benefit financially from the ability to make contributions to a retirement plan along with their employers, but your homecare business also benefitsin the form of tax deductions. The effort it takes to choose the right retirement plan and map out the transition of your business when you retire will pay dividends in the long run.