Retirement
Plan Features Comparison
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Choosing
the right retirement plan may be one of the most important business
decisions you make. Ensuring that you select a plan that is
affordable, administratively feasible and compatible with your
business objectives, is your challenge. Helping you ask the
right questions and get the right answers is ours.
Once you know the basics of the different retirement plan options
and have narrowed down your choices, you may wish to review
the most likely choices with your tax advisor for his or her
professional recommendation.
The chart inside provides a simplified, general comparison of
some of the important features of the most popular retirement
plans: including simplified employee pension (SEP), 401 (k),
profit sharing, money purchase pension and the new SIMPLE IRA
plan.
But first, here are some questions to ask yourself before examining
the detailed plan comparison chart below.
· Am I establishing a plan to maximize personal contributions,
to retain, attract or motivate quality employees, to fulfill
an employment promise, etc.?
· Are revenues steady, or run in cycles of high and low
cash flow?
· What costs in dollars and administrative time is my
company willing to absorb? Let us help you interpret the following
information, and assist you in setting up the plan that's right
for your business. |
|
Setup
and Funding |
Contribution
Limit |
Deduction
Limit |
Salary
Deferral Feature |
Key
Plan Benefits |
| Simplified
Employee Pension Plan (SEP) |
You
have until your tax return due date plus extensions to establish
and fund a SEP. |
Contributions
for each eligible employee may not exceed 15% of each individual's
compensation or $24,000 (for 1997), whichever is less. |
The
employer's deduction limit for contributions made to each eligible
participant's IRA may not exceed 15% of each eligible participant's
compensation. |
This
feature is only available to employers with 25 or fewer eligible
employees. At least 50% of the eligible employees must participate.
(Salary deferral SEP plans may not be established after December
31, 1996.) |
- Administrative
ease
- No
government reporting
- Less
restrictive of who participates
- Need
not fund each year or at a specific level
|
Simple
IRA Plan
A similar plan--the Simple 401(k) plan--has provisions that
have similarities to the Simple IRA plan, but differ in various
respects |
The
plan must be established prior to beginning employee deferrals
(which may only be made prospectively). The employer will match
employee deferrals or provide a non-elective contribution to
all eligible employees. |
The
annual deferral limit is $6,000. The employer must generally
choose either to match employee deferrals up to 3% of compensation,
or to make a 2% non-elective contribution to all eligible employees. |
The
employer's deduction limit is the same as the contribution limit. |
Deferrals
are a flat dollar amount or a percent of compensation, to a
maximum of $6,000 (to be indexed) per year. |
- Administrative
ease
- No
government reporting
- Avoids
complicated nondiscrimination testing and top-heavy requirements
- Does
not limit eligibility or employee access to funds
|
| 401(k)
Plan |
The
plan must be established prior to beginning employee deferrals.
Matching or other contributions of the employer may be made
at any time before the employer's tax return due date plus extensions. |
Contributions
(employer and employee) plus any forfeitures allocated to a
participant's account for the plan year may not exceed 25% of
compensation or $30,000, whichever is less. |
The
employer's deduction is limited to 15% of compensation paid
to eligible participants for the year. |
Deferrals
are a flat dollar amount or a percent of compensation, to a
maximum of $9,500 (to be indexed) per year. (May be restricted
for highly compensated employees.) |
- Highly
visible employee benefit
- Flexible
funding
- Allows
restricted coverage
- Allows
control over when the money will be withdrawn
|
| Profit
Sharing Plan |
You
have until the end of your tax year to establish a profit sharing
plan and until your tax return due date plus extensions to fund
the plan. Flexible contributions are decided each year. |
Contributions
(employer and employee) plus any forfeitures allocated to a
participant's account for the plan year may not exceed 25% of
compensation or $30,000, whichever is less. |
The
employer's deduction is limited to 15% of compensation paid
to all eligible participants for the year. |
Available
through a 401(k) component of a profit sharing plan. |
- Flexible
funding
- Suited
to irregular profit patterns
- Allows
restricted coverage
- Allows
control over when the money will be withdrawn
|
| Money
Purchase Pension Plan |
You
have until the end of your tax year to establish a money purchase
pension plan and until your tax return due date plus extensions
to fund the plan. Fixed contributions are required each year. |
Contributions
(employer and employee) plus any forfeitures allocated to a
participant's account for the plan year may not exceed 25% of
compensation or $30,000, whichever is less. |
The
employer's deduction may not exceed 25% of compensation paid
to all eligible participants for the year. The contribution
percentage is specified by the employer when the plan is adopted. |
Not
available. |
- Maximum
possible contributions
- For
those who find fixed contributions acceptable
- Allows
restricted coverage
- Allows
control over when the money will be withdrawn
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