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Simple IRAs & Sep IRAs
SIMPLE IRA (Savings Incentive Match Plans for Employees)
A SIMPLE IRA plan is an IRA-based retirement plan that gives small employers a simplified method to make contributions toward their employees' retirement as well as their own retirement. Under a SIMPLE IRA plan, employees may choose to make a "pre-tax" salary reduction contribution and the employer must either match employee contributions up to 3% or make a non-elective contribution of 2% to the employee's account, whether the employee participates or not. Contributions to a SIMPLE IRA are 100% immediately vested and earnings grow tax-deferred until the money is withdrawn by the participant.
To sponsor a SIMPLE IRA plan, a business cannot have more than 100 eligible employees during the preceding calendar year. Certain notices must be provided annually to eligible employees. SIMPLE IRAs are held at a custodian such as a bank or brokerage and proceeds within a SIMPLE IRA may be invested in anything that the custodian allows, such as, stocks, bonds, mutual funds, real estate, etc. Business owners should consult a tax professional prior to the establishment of a SIMPLE IRA plan and should understand the various tax rules associated with these types of plans.
Click Here for more information on SIMPLE IRAs.
SEP IRA (Simplified Employee Pension Plans)
A SEP IRA is an IRA based retirement plan that allows small businesses to provide retirement benefits for the business owners and their employees. A SEP IRA is funded by the employer and contributions are discretionary and similar to a "profit sharing" type of arrangement. The contributions can be up to 25% of pay for each eligible employee, with a contribution limit of $49,000 per year. Participants, or employees, enrolled in a SEP IRA are generally not allowed to contribute to a SEP IRA. All employer contributions are made for the benefit of the eligible employees and are 100% immediately vested. Contributions and earnings grow tax-deferred until the money is withdrawn by the participant.
SEP IRAs are held at a custodian such as a bank or brokerage and proceeds within a SEP IRA may be invested in anything that the custodian allows, such as, stocks, bonds, mutual funds, real estate, etc. Business owners should consult a tax professional prior to the establishment of a SEP IRA plan and should understand the various tax rules associated with these types of plans.
Click here for more information on SEP IRAs.
Please click here to compare contribution limits allowed on various employer sponsored retirement plans, including SIMPLE and SEP IRAs.
