Businesses Should Weigh Retirement Plan Options

Like many investors, small business owners may be wondering if this is a good time to go into the stock market. For those with employees, the debate may extend to whether it's the right time to set up company-sponsored retirement plans.

The timing issue for employers is twofold. First, while no one knows where the stock market is headed, it has already made up a sizeable chunk of its devastating losses and any owner who wants employees to benefit from a continuing recovery should consider setting up a plan soon. Second, deadlines are approaching for creating some of the most popular, and least complex, plans.

Accountants and other financial advisers generally recommend that small businesses set up retirement plans as soon as possible, simply because employees' savings tend to grow over the long term even with serious setbacks like the one the market has seen over the past year.

"If you think the market financials are going to be greater (at retirement) than where they are today, you should be considering this," said Bob Doyle, president of Doyle Wealth Management Inc. in St. Petersburg, Fla. "Do you want to buy into the Dow at 9,500, or do you want to buy into the Dow at 12,000?"

There are a variety of retirement plans available, including several aimed at small businesses. Companies need to comply with paperwork and other requirements set by the IRS, but depending on which plan you choose, the time and effort can be minimal.

The easiest of the plans is called a SEP, or Simplified Employee Pension. An owner only needs to go to a bank or other financial institution to set up a SEP. Companies are not required to file annual reports with the IRS as they must do with more complicated plans such as many 401(k)s or profit-sharing plans.

The IRS is very flexible with the timing of tax deductions for an employer's SEP contributions. The plan must be set up and initial and subsequent contributions must be made by the due date of the owner's return. If owners obtained an extension of the April 15 filing deadline this year, they have until Oct. 15 to set up a SEP and make their contributions for 2008. And they still have plenty of time to make 2009 contributions as well.