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Attract and Retain Employees with Retirement Benefits

Alerus | DEC 17, 2017

Finding - and retaining - talented employees is one of the biggest challenges facing small business owners today. A great way to attract the right people and get them to stay long-term is by offering a retirement savings account. There are many different options when it comes to choosing the right kind of account for your business, so in this post we've chosen to highlight three types that are very frequently used by businesses around the country.

3 Common Types of Retirement Accounts

SIMPLE IRASEP IRATRADITIONAL 401(K)
Number of employees100 or fewerNo restriction on number of employeesNo restriction on number of employees
EligibilityEmployee must have earned at least $5,000 in any two prior years and be expected to earn at least $5,000 in the current yearEmployees must earn $600 or moreEmployees must work 1,000 hours or more during the year
Maximum deferral2018 IRS limits are $12,500 if under age 50; $15,500 if age 50 or older; up to 100% of compensationEmployees can't defer. Employer can contribute up to 25% of compensation; annual max $55,000 (2018 IRS limit).2018 IRS limits are $18,500 if under age 50; $24,500 if age 50 or older; up to 100% of compensation
Early withdrawal penaltyIf a participant makes a withdrawal before he or she attains age 59 ½, generally a 10% additional tax applies. If this withdrawal occurs within the first 2 years of participation, the 10% tax is increased to 25%10% for distributions that occur before age 59 ½10% for distributions that occur before age 59 ½. (This penalty is inapplicable if you are 55 or older and separate from your company after turning 55).
Excludible employeesEmployees who have not earned at least $5,000 in any two prior years or who are not expected to earn at least $5,000 in the current yearEmployees who have not earned $600 in three of the last five yearsEmployees with less than one year of service; employees who work less than 1,000 hours during the year
Are loans allowed?NoNoYes
Federal filing requirements on employer?Generally noneGenerally noneForm 5500 must be filed annually

As you can see, there are some significant differences between these types of accounts. Every business has unique needs and desires when it comes to providing retirement benefits, and the decision is best made with the help of experienced professionals. 

For more information on retirement plans or to speak with a member of our team, please call 800.279.3200 or send an email to smallbusiness@alerus.com.

​Services are offered through Alerus Financial, N.A., which does not provide legal or tax advice.  Be sure to consider potential benefits and limitations of each option regarding the handling of your assets. This material is provided for informational and discussion purposes only.  Please consult with your tax or legal advisor to determine how this information may impact your own situation. The information should not be relied upon as investment advice. Statements of fact are from sources considered reliable but no representation or warranty is made as to their completeness or accuracy.

Investment products:   1) Not FDIC insured 2) no bank guarantee 3) may lose value.

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