Why Have A Plan?

Right now more than 1,000,000 businesses with 100 or fewer employees offer a retirement plan. And once those businesses offered their plan, they found that 86% of their employees chose to participate. Those facts aren't surprising when you consider that in addition to helping you and your employees prepare for a more secure future, a retirement plan can:

Employer Advantages

• Attract and retain great people. For many businesses these days, people are the single most important asset. And with keen competition for the best people, a comprehensive benefits package -- including a retirement plan -- will give you an edge your competitors may not offer.

• Improve morale. Establishing a retirement plan shows your employees in a very real way that you care about their future and their families. A retirement plan gives your employees even more reason to remain committed to your business -- and your success.

• Gain significant tax advantages. Retirement plans offer businesses and their employees special tax advantages.

  • Your company gains an immediate tax deduction for the amount you contribute each year.
  • You and your employees save on taxes because you don't pay federal income tax on amounts contributed.
  • You and all plan participants could actually earn more through tax-deferred accumulation of income and investment gains.
  • You and your employees could experience an overall tax reduction since your tax bracket may well be lower when withdrawals are finally made.

• Keep the flexibility you need. Some retirement plans, including those most commonly offered by other small businesses, give you the option to reduce or even skip contributions in years when it just isn't in the budget.

Employee Advantages

The following chart demonstrates the power of investing in a tax-deferred plan by comparing savings in an employer-sponsored retirement plan with a taxable savings account.

This chart assumes a $200 monthly contribution and a 15% tax bracket. The investment is compounded monthly and earns a 6% annual rate of return.

	After-Tax Savings Plan	Employer-Sponsored Retirement Plan	Tax-Deferred Advantage
10 years	$26,568	$32,776	+23.37%
20 years	$70,855	$92,408	+30.42%
30 years	$144,679	$200,903	+38.38%

As you can see, a pretax contribution allows more of your money to work for you, because you don't pay taxes on those earnings until you make a withdrawal. And, by the time you are ready to withdraw funds from your retirement plan, it is possible that you'll be in a lower tax bracket -- resulting in an overall tax reduction.

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