Retirement Small Business Retirement Rewards

Retirement

Small Business Retirement Rewards

Given the information in the case, including Josephine's desire to reward and retain her employees, a qualified defined-contribution plan such as a 401(k) would be the recommended retirement plan; though a standard pension plan (defined benefit) would also be an effective choice, it limits the freedom and the tax incentives to employees across the board.

The employees at the middle pay-grade will benefit the most from this plan, though it will not be detrimental to anyone; these employees will be able to contribute the most substantial portion of their income to the retirement plan/receive more substantial contributions from the company in terms of income percentage. This will achieve Josephine's goals by incentivizing a long relationship with the company and providing extra benefits that are aimed at those without top-tier salaries, while also allowing more freedom in retirement planning.

3)

A qualified plan will have tax benefits for everyone involved, from the company to the employees receiving the retirement benefits. These benefits will be felt most significantly by employees with lower salaries, who are currently the least incentivized in terms of compensation. A defined contribution plan gives individuals greater freedom in allocating their income and retirement funds. Disadvantages to this plan include stricter limitations on access to retirement funds, an encumbrance on the company to make regular defined contributions to retirement accounts, and a lower level of benefit to higher salary earners than could be achieved with other plans. Given Josephine's goals, howver, these disadvantages are insignificant.

4)

The plan will not have to file a tax return, however it will need to be included in the tax returns of the individuals receiving the retirement contributions (i.e. The employees) as well as on the tax returns of the company itself. Contributions are a tax deduction for the company and are tax-deferred to employees until the time that disbursal begins, but values will still need to be noted.

5)

Josephine's company would be required to make contributions to individual retirement accounts each year, however Josephine personally would not be required to make any contributions to her own 401(k) if she did not wish to (and if the legal documents creating the company's retirement plan policy exempt her from needing to have such a plan in place, and even without this legal provision only the company would be required to make contributions from its profits, not Josephine from her salary). In simple terms, no, Josephine would not be required to make a contribution to her retirement account each year.

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