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Small businesses are the backbone of the U.S. economy, and according to the SBA, small businesses make up 99.7% of U.S. employer firms and 49.2% of private sector employment. Historically, these employers have faced challenges when it comes to providing affordable health care for their employees. It is estimated that smaller firms pay 18% more, on average, than larger employers.
If you own a small business, with less than 25 full-time equivalent employees, you may be eligible for the Affordable Care Act Tax Credit. A full time equivalent employee is categorized as someone who works 2,080 hours per year, and several part-time employees can be categorized as one full-time equivalent employee.
Small employers can sign up through the Small Business Health Options Program (SHOP), an online marketplace that offers health and dental insurance plans to firms with less than 50 full time equivalent employees. In order to qualify for the tax credit, each of the following conditions must be met:
• 25 or less full-time equivalent employees
• Average employee salary must be $50,000 or less
• The employer pays at least 50% of the premium costs for full time employees
• The coverage must be purchased through the SHOP exchange
The credit is worth up to 50% of the premiums that you pay for your employees. For example, if you have paid $10,000 in premiums for your employees, you will qualify for up to $5,000 credit. If your business employs less than 10 full time equivalent workers, who earn $25,000 or less, you may receive a higher tax credit.
The Affordable Care Act has not been without challenges. Many smaller employers with more than 50 employees have seen their premiums increase. Nationally, there have been insurers that have withdrawn from state exchanges because their risks have increased. While these challenges persist, many small businesses, micro-enterprises, and freelancers have benefited from the tax credit available through the SHOP marketplace.
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Small business owners wear many hats. Running a business and handling administrative tasks can leave very little time for strategic planning, but one of the most important actions that an entrepreneur can take is to establish a retirement plan. Here are several reasons why you should establish a plan for your business.
1. Attract and Retain Employees
One of the challenges that small business owners face is attracting and retaining qualified employees. As wage pressure increases for employers, offering a retirement plan may alleviate some of those concerns. Many employees are willing to forgo higher wages for a generous benefits package. Potential hires may also feel comfortable knowing that you have a plan in place in case they would like to rollover a plan from their previous employer.
2. Tax Benefits
Offering a retirement plan can provide small businesses with many tax benefits. Employer contributions to the 401k plan are tax deductible. These contributions can accumulate and any investment gains will enjoy tax-free growth until there is a distribution.
3. Succession Planning
Many entrepreneurs do not have a plan for their retirement. Small business owners tend to reinvest and put profits back into their business. As they prepare for retirement, many plan to sell their business. If they are unable to, they may find themselves working far longer than they had ever intended to. By developing a retirement plan and maximizing their annual contributions, small business owners have a better chance at achieving retirement security.
The benefits of establishing a retirement plan are many. As the costs decrease and the number of 401k providers increase, small business owners have a variety of options to choose from.
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Millions of Americans are having difficulty saving for retirement. Student loan debt, increased food and housing costs, and stagnant wages are contributing factors.
If you have an employer-sponsored retirement plan, there are several steps you can take to boost your 401K.
1. Maximize Your Contributions
Once you establish your 401K account, you may want to increase your contributions. Usually the default contribution rate is between 3% and 5%. It is recommended that you should save at least 10% of your income. If you can afford to do so, I would recommend maximizing your contributions. In 2016, you can make a maximum contribution of $18,000. If you are 50 or older, the IRS allows you to make a catch-up contribution of $6,000 for a total of $24,000.
2. Take Advantage of Your Employer Match
Many employers offer to match your 401K contributions by a percentage or dollar amount. An employer may offer a 100% match up to 5% of your contribution. For example, if you contribute 5% of your salary to your 401K, the employer will match your 5% for a total of 10%. The employer may or may not offer additional matching beyond this 5% but it is an incentive for you to save. If you do not take advantage of the match, it is money that you are leaving on the table.
3. Minimize Expenses
While a 401K plan allows you to defer taxes, there may be fees associated with the investment vehicles offered by the plan. Choosing an index fund or an exchange-traded fund with low expense ratios will minimize your expenses while adding to your long-term returns. Sales loads can also take a bite out of your returns. Sales charges are paid to the broker who sold you the mutual fund. Consider choosing a no-load mutual fund as an alternative. Another set of fees that you may notice are commissions or transaction fees. If your plan offers a brokerage account, you may be paying a commission on each trade.
4. Consolidate Your 401K Plans
Nowadays, it is not uncommon for someone to have had several jobs. We may have contributed to several different 401K plans with our former employers. Rolling over these balances into your existing employer’s plan would give you full control over your retirement assets. If you are in transition or self-employed, you can consolidate your retirement plans at a brokerage firm or a bank.
The federal government has developed a retirement vehicle, myRA, to help people without a retirement plan save for their future. Several states are planning or implementing their own retirement plans. Although these efforts are commendable, they are limited in their scope. Ultimately, we must be responsible for our own retirement planning.