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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Friday, September 12, 2008 Time to get retirement plans set up for staff By Joyce Rosenberg Small-business owners who are thinking about setting up retirement plans for their employees should be aware that there are two important deadlines coming up in October that affect the plans known as SIMPLEs and SEPs. Under the Internal Revenue Code, Oct. 1 is the date by which a business must set up a SIMPLE, or Savings Incentive Match Plan for Employees. And, for owners who received extensions of the filing deadline for their 2007 returns, Oct. 15 is the date by which they must set up a SEP, or Simplified Employee Pension, in order to take a deduction for 2007. It's also the date by which 2007 contributions to existing SIMPLEs and SEPs must be made, again, for owners who received extensions. SIMPLEs and SEPs are among the most popular retirement plans for small businesses because they are easy to create and maintain. Unfortunately, in the current difficult economic climate, many small owners might decide to forgo a retirement plan. Tax professionals urge owners to try to cut something else in the budget first. Gordon Spoor, a certified public accountant in St. Petersburg, Fla., said he's drafted returns for small business owners that include, for example, a $20,000 retirement plan contribution, and gotten the response, "things are tightened up in this economy; I don't want to do that." Spoor then tries to get these owners to contribute $10,000. His concern is that if an owner puts off creating a plan, or doesn't make an annual contribution, the retirement plan will just keep going by the wayside, year after year. "You look back 10 years and you haven't been doing it for 10 years," he said, warning owners that they shouldn't fall into the trap of thinking, "I'll be able to make it up next year." Spoor also doesn't believe that because Wall Street is so volatile now, that it's a bad time to be setting up a stock retirement plan. Over the years, even money invested in a down market has grown, and in fact, many professionals believe a dip is a good time to be buying stocks. "Don't let what's happening to the market be your excuse," Spoor said. And retirement plans don't have to be based on stocks or other investments. An owner can set up a bank account and put cash in for employees; the returns might be smaller over time, but at least there's a plan in place. Moreover, a company can change to a different type of plan later on. A retirement plan should be considered in the context of the entire business, not just how much money you can deduct on a tax return. Owners would do well to talk to a professional such as an accountant or tax attorney, and perhaps also a human resources consultant to be sure that they're choosing the right plan for their company -- a retirement plan is an important recruiting and retention tool that can affect how well a business competes for top workers. The SEP plan is extremely easy for a small business to create and maintain because it has the least amount of paperwork and reporting requirements of all the retirement plans; an owner can simply go to a bank or other financial institution and set up the account. A SEP allows a company to deduct up to $45,000 for the 2007 tax year and $46,000 for 2008 for contributions to an employee's account. The SIMPLE provides for employers to match employee contributions in much the same way as a 401(k), and a SIMPLE can actually take the form of a 401(k) if an owner decides to do something more complex. The IRS places more restrictions on a SIMPLE than on a SEP; for example, a SIMPLE can only be created by a company with 100 or fewer employees. While the deadline for setting up a SIMPLE is nearby, owners have until Dec. 31 to set up the even more complex plans known as qualified plans, which include profit-sharing and defined benefit plans. But they are more costly to maintain and many small business owners prefer to stay with the simpler plans. Joyce Rosenberg writes about small-business issues for the Associated Press. Help on the Web Owners seeking more information about the various retirement plans available to them can find an IRS primer, Publication 560, Retirement Plans for Small Business, on the agency's Web site, www.irs.gov. The IRS also has a free CD-ROM, Individual Retirement Arrangement Resource Guide for Small Business Owners and Individuals. Instructions for ordering it can be found at tinyurl.com/66n6db. The Labor Department also has information online for small-business owners at www.dol.gov/elaws/pwbaplan.htm. The site explains the types of plans available and the responsibilities, such as annual paperwork requirements, that a company must fulfill for each. READER COMMENTS Be the first to comment. You must be a registered user and verify your e-mail address to post comments to blogs or articles on HeraldNet. To register, click here. To read other terms and conditions, click here. Log out

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