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Various Retirement Plans for Small Businesses and 401k Administration Fees
The advantages of a retirement plan are numerous. There are economic, business and tax advantages for your business, for your employees and for you.
This extract from the 2004 Small Business Resource Guide CD provides retirement plan information for you, the business owner, including why a retirement plan makes good sense for you, selecting the right plan for your business, operating your retirement plan, filing information returns, and more
401k Tip
Mutual fund 401(k) plans have been aggressively promoted to the small business communities both by no-load fund companies. recent new articles, however, have reported a trend among many of these plan vendors to abandon the very small plans because the costs of providing 401(k) services for such plans versus the revenue generated from them has proved to be a losing proposition. For economic reasons, the sales target for mutual fund bundled plans has been raised, and now companies with fewer than 100 employees are not being actively solicited by most of these vendors. One company that has enjoyed the benefits of a 401k using no-load mutual fund investments is Target Labs (www.targetlab.com) a small employer.
A retirement plan may give you an important competitive edge in attracting and keeping the best employees - and help you plan for your own retirement years. Information to help you choose the type of plan that is right for your business and get that plan into operation
Retirement plans are savings plans that offer you tax advantages to set aside money for your and your employees' retirement.
Whether you choose to have a SEP, SIMPLE or other IRA-based plan or you choose to have a qualified plan, retirement plans are a great way for you and your employees to save for retirement. You can deduct contributions you make to the plan for you and your employees. The contributions and earnings are generally tax-free until you or your employees receive distributions from the plan in later years.
All retirement plans have important tax, business and other implications for employers and employees. Therefore, you may want to discuss any retirement savings plan with a tax or financial advisor.
Retirement plans are savings plans that offer you tax advantages to set aside money for your and your employees' retirement.
Whether you choose to have a SEP, SIMPLE or other IRA-based plan or you choose to have a qualified plan, retirement plans are a great way for you and your employees to save for retirement. You can deduct contributions you make to the plan for you and your employees. The contributions and earnings are generally tax-free until you or your employees receive distributions from the plan in later years.
All retirement plans have important tax, business and other implications for employers and employees. Therefore, you may want to discuss any retirement savings plan with a tax or financial advisor.
Visit the IRS website for more information on retirement plans.
Simplified Employee Pension (SEP)
SIMPLE Retirement Plan
Qualified Plans
Individual Retirement Arrangement (IRA)
Which Plan is Right for Your Business?
Retirement Plans for Small Businesses
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Eligibility Requirements for Participating in a Retirement Plan
Regardless of the retirement plan you choose, certain "eligibility" requirements apply. "Eligibility" means when your employees must be included in the plan – when they must start to have contributions made on their behalf.
For example, if you establish a SIMPLE-IRA plan, all your employees become eligible to participate in the plan if they:
Earned income of at least $5,000 in either of the prior two years.
- Are reasonably expected to earn at least $5,000 in the current year.
- Are not covered by a collective bargaining agreement (if retirement benefits were the subject of good-faith bargaining).
These are the minimum standards. The requirements can always be more liberal. For instance, your SIMPLE-IRA plan could provide for participation as long as the employee earns any compensation. However, the plan could not require the employees be age 25 or that they must have worked for you for at least five years in order to participate in the SIMPLE-IRA.
Check with your financial advisor to see what plan and what eligibility standards – tighter or looser – are right for you and your business.
Which Plan is Right for Your Business?
There are many factors to consider when deciding which plan best fits your business. When determining which plan is right for you, consult a financial advisor.
Payroll Deduction IRA
Even if an employer does not want to adopt a retirement plan, it can allow its employees to contribute to an IRA through payroll deductions, providing a simple and direct way for eligible employees to save.
Simplified Employee Pension (SEP)
Simplified Employee Pensions (SEPs) provide a simplified method for employers to make contributions to a retirement plan for their employees. Instead of establishing a profit-sharing or money purchase plan with a trust, employers can adopt a SEP agreement and make contributions directly to an individual retirement account or an individual retirement annuity established for each eligible employee.
SIMPLE-IRA Plan
A Savings Incentive Match Plan for Employees, or SIMPLE gives small employers a simplified method to make contributions toward their employees’ retirement and their own retirement. A SIMPLE-IRA plan includes a written salary reduction agreement between employee and employer that allows the employee, if eligible, to choose to have the employer contribute the salary reductions to a SIMPLE-IRA on the employee’s behalf.
401(k) Plan
A type of defined contribution plan that allows employee salary deferrals and/or employer contributions.
SIMPLE 401(k) Plan
A type of defined contribution plan available to the small business owner with 100 or fewer employees. Under a SIMPLE 401(k) Plan, an employee can elect to defer some compensation. Unlike a standard 401(k) plan, the employer must make either: (1) a matching contribution up to 3% of each employee's pay, or (2) a non-elective contribution of 2% of each eligible employee's pay.
403(b) Tax-Sheltered Annuity Plan
Annuity plans for certain public schools, colleges, universities, churches, public hospitals, and charitable entities deemed tax-exempt under Internal Revenue Code section 501(c)(3).
Profit-Sharing Plan
A type of defined contribution plan that allows discretionary annual employer contributions.
Money Purchase Plan
A type of defined contribution plan in which employer contributions are fixed.
Defined Benefit Plan
A type of plan that is funded primarily by the employer and whose contribution is actuarially determined.
Additional non-profit websites that
include relevant unbiased information about 401k plans include:
www.401k-for-one.com
Important References:
Form 5300 & Instructions, Application for Determination for Employee Benefit Plan
Form 5304-SIMPLE, Simple Incentive Match Plan for Employees of Small Employers (SIMPLE)
Form 5305-SIMPLE, Simple Incentive Match Plan for Employees of Small Employers (SIMPLE)
Form 5305-S, SIMPLE Individual Retirement Trust Account
Form 5305-SA, SIMPLE Individual Retirement Custodial Account
Form 5305-SEP, Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement
Form 5307 & Instructions, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans
Form 5500 & Instructions, Annual Return/Report of Employee Benefit Plan
Form 5500-EZ & Instructions, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan
Publication 535, Business Expenses
Publication 560, Retirement Plans for Small Businesses
Publication 590, Individual Retirement Arrangements (IRAs) rrp
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