As Stocks Fall, Small Businesses Urged to Start Retirement Plans

By | January 25, 2008

Amid the turbulence of the plunging stock market, there’s a great opportunity for small business owners — if they set up retirement plans now, they’ll position themselves and their employees for big gains when Wall Street finally recovers. And it’s still possible to set up a plan and get a break on 2007 taxes.

The savviest investors, especially those saving for a retirement that’s years away, buy when the market is down.

“What’s the best place for long-term growth? The stock market,” said Bob Doyle, president of Doyle Wealth Management Inc. in St. Petersburg, Fla. “It’s down, but wouldn’t you like to buy something cheaper as opposed to something more expensive?”

Doyle acknowledged that it’s human nature to shun the stock market when it’s in a slump, and he said many would-be investors think that because the stock market has fallen close to 20 percent in recent months, it’s going to fall another 20 percent in the near future. They don’t even want to consider investing.

But, Doyle noted, that while there have been bear markets since the end of World War II, “they all ended and they were all followed by resounding bull markets.” So small business owners looking to provide their employees with a valuable benefit, and to give themselves an effective recruitment and retention tool, this is a good time to be thinking about creating a retirement plan.

Many small business owners expect their companies to be enough of an investment, and don’t think that retirement plans — at least for themselves — are a necessity. Financial pros say that’s a mistaken point of view.

“You need to make sure that you have something in place that’s going to take care of your needs in the future,” said Catherine Gordon, a senior writer/analyst with Wolters Kluwer in Cocoa Beach, Fla. She noted that owners who have no additional investments leave themselves financially vulnerable in the event their companies fail.

Small business owners have a number of retirement plan options available. If you’re considering one, you should first learn about the various types of plans, and you should consult with a tax professional and perhaps a benefits consultant to determine which one is best for your company.

One of the most popular plans, the Simplified Employee Pension, or SEP, allows a company to deduct up to $45,000 (for the 2007 tax year; the amount may change for 2008) for its contributions to an employee’s account. If you’re thinking about starting a plan in the near future, the SEP plan carries another bonus — you can still set it up and make a contribution for 2007, getting a tax deduction as long as you do this by due date for your return for last year (that includes extensions until Oct. 15).

The SEP plan also has the least amount of paperwork and reporting requirements, making it easy for a small company to administer.

Another plan with a minimum of paper is the SIMPLE, or Savings Incentive Match Plan for Employees. It provides for employers to match employee contributions similar to the process in a 401(k) — and it’s possible for a SIMPLE to be a 401(k). It carries more restrictions than a SEP; for example, it can only be created by a company with 100 employees or less. But it has some advantages; contributions can be made by payroll deductions.

Other plans include more formal 401(k) profit-sharing and defined benefit plans.

The IRS offers a free CD-ROM with information about various retirement plans, including rules for setting them up. It’s called the Individual Retirement Arrangement (IRA) Resource Guide for Small Business Owners and Individuals CD-ROM, and you can order a copy online at,,id(equal sign)136836,00.html. Or you can call 1 800 829-3676 and ask for Publication 4395.

The IRS publication 560, Retirement Plans for Small Business,
can also help. You can find it online at

The Labor Department also has information for small business owners. At, the department provides information on the types of plans available, and the responsibilities, such as annual paperwork requirements, that a company must fulfill for each.

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