Choosing a Retirement Plan
Retirement Plan Options
Starting a retirement
savings plan can be easier than most people think. What's more, there
are a number of retirement programs that provide tax advantages to both
employers and employees.
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.
Salary Reduction Simplified Employee Pension (SARSEP)
A SARSEP is a SEP set up before 1997 that includes a salary reduction
arrangement. Because this is a simplified plan, the administrative costs
should be lower than for other more complex plans. Instead of
establishing a separate retirement plan, in a SARSEP, employers make
contributions to their own IRA and the IRAs of their employees, subject
to certain percentages of pay and dollar limits.
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
Tax-favored retirement plans that certain small employers (including
self-employed individuals) can set up for the benefit of their
employees, a SIMPLE IRA plan is 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 IRC section 501(c)(3).
Profit-Sharing Plan
A type of defined contribution plan which 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.
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