Retirement Primer
Finding the Right Plan for Your Small Business
There are a slew of retirement plans geared for small businesses or the self-employed, says Sam Gilbert, president, United Plan Administrators and a member of the U.S. Chamber's Employee Benefits Committee.
SIMPLE Plans-The Savings Incentive Match Plan for Employees, or SIMPLE-IRA, is an employer-matching contribution plan targeted at businesses with 100 or fewer workers.
- Pros-There are no annual government filing requirements. The plan is set up and administered through a financial institution. Setup fees can be as low as $15-$25 per employee.
- Cons-Unlike a traditional 401(k) plan, which has an employee contribution limit of $15,500, employee contributions in a SIMPLE-IRA are currently capped at $10,500.
SEP Plans-In a simplified employee pension (SEP), an employer makes contributions to special IRAs (SEP-IRA) set up for each individual qualifying employee.
- Pros-Employers complete a one-page IRS form and employees complete an IRA application. There are no annual government filing requirements. Employer contributions are voluntary and are capped at 25% of compensation per employee, not to exceed $45,000 a year.
- Cons-SEPs are funded by employers only, and all
qualifying employees must be covered under the plan, including certain part-time employees.
Solo 401(k)-The solo 401(k) plan is a tax-deferred retirement plan for businesses in which the owner or owners are the only employees.
- Pros-Plan owners decide each year whether to contribute and how much. Contributions are capped at 25% of compensation or $45,000 (annually adjusted), whichever is less. Individuals 50 or older can make a catch-up contribution of $5,000 (annually adjusted).
- Cons-Solo 401(k)s are subject to Employee Retirement Income Security Act and IRC reporting requirements.
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