Retirement plans are set up by the owners of a company as an incentive to attract and keep qualified workers. Small companies can also have retirement plans for the owner or owners of a company. There are different kinds of plans that work well in such situations, and these can be used for virtually any kind of business structure, including limited liability companies (LLCs).
An LLC, is a type of business structure that provides some of the benefits of a corporation without the need to actually incorporate. An LLC is governed according to the laws of the state in which it is formed, and can be formed by one or more people, referred to as members. The main purpose of an LLC is to protect the members from liability, and the members' risk is generally limited to what they have invested in the company, although there are sometimes exceptions to that.
A retirement plan is a savings plan that is intended to provide money or benefits for employees when they retire. Some of the more popular retirement plans are 401(k)s and individual retirement accounts (IRAs). The 401(k) plans sometimes include employer matching funds, as do some of the IRAs. Some types of IRAs, such as the simplified employee pension IRA – SEP – and the savings incentive match plan for employees IRA – SIMPLE – are designed to make it easy for companies of any size to have a retirement plan.
The Internal Revenue Service allows many types of retirement plans and provides an incentive to employees and employers in the form of tax benefits. Accounts that provide matching funds to employees who save for retirement benefit them by encouraging saving for the future. And in most cases, this reduces the amount of income they have to pay taxes on. Likewise, employers who match funds can write off the matching funds as a business expense, reducing the company’s amount of taxable income. This is even without the matching funds employees save on taxes, either when the money is deposited or at the time distribution of funds begins.
Any company can set up a retirement plan. The plan should be geared toward the needs of both the company and the employees, but there are plans to cover every type of business, whether it's a sole proprietorship or a huge corporation. There is no specific structure that is required for a business to be able to offer a retirement plan, and an LLC can set up any plan that is appropriate for its size.
- IRS: 401(k) Plans
- IRS: Publication 590: Individual Retirement Arrangements (IRAs)
- Internal Revenue Service.gov. "SIMPLE IRA Plan FAQs—Contributions." Accessed May 28, 2020.
- Internal Revenue Service.gov. "Retirement Topics—SIMPLE IRA Contribution Limits." Accessed May 28, 2020.
- Internal Revenue Service.gov. "SEP Plan FAQs—Contributions." Accessed May 28, 2020.
- Internal Revenue Service.gov. "About Publication 560, Retirement Plans for Small Business(SEP, SIMPLE and Qualified Plans)." Accessed May 28, 2020.
- Internal Revenue Service.gov. "Retirement Topics—IRA Contribution Limits." Accessed May 28, 2020.