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 |
| 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.) |
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. |
| 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.) |
| 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. |
| 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. |
