Whether you are self-employed or a small business owner,
there are a wide range
of small business retirement plans
designed to meet your specific needs. All small
business
retirement plans can help you save a significant amount of
money
toward your retirement and provide tax advantages at
the same time.
A SIMPLE IRA Plan is a salary reduction retirement
plan. That simply means that your employees
decide how much
they want to save for retirement — and that amount is
automatically
deducted from their salary each pay period before
federal income taxes are withheld. These
amounts are then contributed
to a SIMPLE IRA for each participant. While SIMPLE IRA Plans
are funded in part by employee salary reduction contributions,
they do require employer contributions.
|
|
SEP-IRA |
Self-Employed
401(k) |
SIMPLE
IRA |
401(K) |
| Who It's For |
Self-employed
individual or small business owner, including those
with employees.
|
Self-employed
individual or business owner with no employees other
than a spouse.
|
Businesses
with 100 or less employees who do not currently maintain
any other retirement plan. |
Any type of public or private
company.
Generally most appropriate for companies with 20 or more
employees |
| Available to sole proprietors, partnerships,
C corporations, S corporations. |
| Key Advantages |
No IRS reporting required.
Easy to set up and maintain.
Flexible annual funding requirements.
Full range of investment choice.
|
A 401(k) with potentially higher contribution
limits than SEP-IRA.
Full range of investment choice. |
No IRS reporting required.
Salary
deferral plan with less administration.
Electronic funding with customized contribution allocation
for each participant.
Full range of investment choice
|
Flexibility
in plan design. Plan administrative services, investment
management, and participant education programs.
Full range of mutual fund options.
|
|
Who Can Contribute |
Funded solely by employer contributions |
Funded by employee deferrals and employer
contributions. |
Funded by employee deferrals and employer
contributions. |
Funded by employee deferrals and employer
contributions. |
|
2012 Employee Contribution
Limits |
NA |
Up to $17,000 in pre-tax salary deferrals,
$22,500 if age 50 or older. |
Up to $11,500 in salary deferrals or
$14,000 if age 50 or older. |
Up to $17,000 in salary deferrals,
or $22,500 if age 50 or older (limits may vary by plan). |
|
2012 Employer
Contribution Limits
|
Up to 25% of compensation,* (20% if self-employed)
up to a maximum of $50,000.
|
Up to 20% of self-employment income.*
Maximum combined contribution (including salary deferral) cannot exceed $50,000.
|
Either match employee
contributions up to 3% of compensation or contribute 2%
of each employee's compensation*, up to $4,900.
|
Employers may make
a matching contribution or profit sharing contribution
- up to 25% of compensation up to a maximum of $50,000
for 2012.
|
|
Administrative Responsibilities |
No employer tax
filings.
Employee notification of employer's contribution, if
made
|
Annual Form 5500
filing after plan assets exceed $250,000.
|
No employer tax
filings.
Certain annual employee notifications.
|
Form 5500 and special
IRA testing to ensure plan does not favor highly compensated
employees.
|
|
Access to Assets |
Withdraw at any time, but a 10% penalty
may apply if you are under 59½. |
Cannot take withdrawals
from the plan until a "trigger" event occurs,
such as turning age 59½, disability, and/or
plan termination.
|
Withdraw at any
time, but a 25% penalty may apply if taken within first
two years of participation in the plan and a 10% penalty
may apply if you are under 59½.
|
Loans available
Hardship withdrawals may be taken but a 10% penalty may
apply if you are under 59½.
Withdrawals can be taken upon a "trigger" event
such as turning age 59½, disability and/or plan
termination.
|
|
Plan Set Up Deadlines |
Establish by employer's tax filing
deadline, plus extensions – usually April 15 |
Establish by December
31 (or fiscal year-end).
|
Establish by October
1.
|
Deadline is based upon the plan selection. |
* The maximum
compensation on which contributions and SIMPLE-IRA employer
2% non-elective contributions can be based is $245,000 for the 2011 plan year. For
self-employed people, compensation means earned income.
