If you're a manufacturer, contractor, professional practitioner, or are self-employed, a SEP IRA or SIMPLE IRA can provide you and your employees with an easy and affordable retirement plan.
These IRA-based retirement plans allow your company to make tax-deductible contributions directly to employees' IRA accounts. As a result, these plans offer simplicity, administrative convenient, and cost-effectiveness. Employees are immediately vested and they can withdraw money at any time (subject to taxes and IRS penalties). These plans may be as permanent or temporary as you desire.
The SEP IRA
Your company's contributions are tax deductible and limited to the lesser of 25% of each participant's compensation, or up to $49,000 in 2009.
With its minimal expense and administrative requirements, this low-cost plan is particularly suitable for the self-employed, and for small companies.
If you're an individual and have a sideline business or other self-employment income, you may be eligible to open a SEP IRA and contribute a portion of your self-employment income.
The SEP IRA
Your company's contributions are tax deductible and limited to the lesser of 25% of each participant's compensation, or up to $49,000 in 2009.
With its minimal expense and administrative requirements, this low-cost plan is particularly suitable for the self-employed, and for small companies.
If you're an individual and have a sideline business or other self-employment income, you may be eligible to open a SEP IRA and contribute a portion of your self-employmentincome.
The SIMPLE IRA
A SIMPLE IRA Plan gives employers with 100 or fewer employees—and self-employed individuals—another administratively easy, affordable retirement plan option.
Employees who receive at least $5,000 in compensation in any two preceding years, and who are expected to receive at least $5,000 in the current year, are eligible to participate in SIMPLE plans. Employers can choose to exclude employees who do not meet these requirements.
Eligible employees may defer up to $11,500 for 2009.
The employer must match dollar for dollar of employee contributions (up to 3% of the employee's compensation), or contribute 2% of the salary of each eligible employee.1,2 There is some flexibility in reducing the matching requirement.
All employer contributions, including salary reduction contributions made on behalf of employees, are tax-deductible to the employer.
Generally, self-employed individuals can open a SIMPLE IRA and may contribute a portion of their earned income.
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For more information to see if a SEP or SIMPLE IRA plan is right for you, contact your registered investment advisor or click here and we will have someone contact you at your convenience.
Employer
Eligibility
Any type of employer
Any type of employer that:
1. Employs no more than 100 employees who earned at least $5,000 during
the preceding year; and
2. Does not currently sponsor another retirement plan.
Employee
Eligibility
Must Include:
Employees who:
1. Worked for the employer in any 3 out of the last 5 years;
2. Earned at least $5001 in the current year; and
3. Are at least 21 years old.
(Employers may adopt less restrictive eligibility standards.)
May Exclude:
1. Collective bargaining unit employees; and
2. Non-resident aliens.
Must Include:
Employees who:
1. Worked for the employer in any 2 or more preceding years; and
2. Earned at least $5,000 from the employer in any 2 preceding years and are
expected to earn at least $5,000 in the current year.
(Employers may adopt less restrictive eligibility standards.)
May Exclude:
1. Collective bargaining unit employees; and
2. Non-resident aliens.
Pre-Tax
Employee Deferral
Except for certain plans established before 1997, employees may
NOT elect to defer compensation.
Generally, each year eligible employees may elect to defer a portion of their
compensation.
Eligible employees may defer up to $11,500 in 2009. 2
Employees age 50 and older may may defer up to $14,500 for 2009.
Contribution Limits
The employer may contribute up to the lesser of 25% for eligible
employees compensation3 up to $49,000 in 2009.
An employer does not have to make contributions to a SEP each
year, but if the employer makes contributions, the contributions
generally must be based on the same percentage of compensation
for all employees.
Each year, the employer must make either a:
1. Dollar for dollar match of employee elective deferrals up to 3% of compensation or
2. Non-elective contribution equal to 2% of compensation3 for all eligible employees whether or not the employees make elective deferrals.
Employer Tax-
Deductibility
Total employer contributions up to 25% of compensation3 or the dollar limit shown in “Contribution Limits” are tax deductible.
Total employer contributions are tax deductible, including match or non-elective contribution and employee elective deferral.
Distributions
The employer cannot control when employees take distributions. Distributions are subject to the same rules that apply to traditional IRAs. Distributions are generally taxable in the year received and withdrawals prior to age 59½ are subject to a 10% IRS penalty tax.
The employer cannot control when employees take distributions. Distributions are subject to the same rules that apply to traditional IRAs. Distributions are generally taxable in the year received and withdrawals prior to age 59½ are subject to a 10% IRS penalty tax. This 10% penalty increases to 25% if the employee takes a distribution within two years from the date that the employee first participates in the plan.
Advantages
1. Easy Administration
2. Generally, recurring contributions are not required
3. Participants choose investments
4. Participants always 100% vested
5. Contributions can be made for employees older than 70½, but the employee must also take distribution under the required minimum distribution rules
1. Easy Administration
2. Contributions are required each year but are somewhat flexible in amount
3. Participants choose investments
4. Participants always 100% vested
5. Contributions can be made for employees older than 70½, but the employee must also take distribution under the required minimum distribution rules
6. No complex nondiscrimination or “top heavy” rules
1 Amounts are subject to cost of living adjustments. Amounts will be indexed for inflation.
2 These amounts have been temporarily increased under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). After 2010, these amounts will
revert to the limits in effect in 2001 unless Congress extends the effective date for these limits.
3 For this calculation, the employer may only consider compensation up to $245,000 in 2009.
Mutual funds are subject to risks and fluctuate in value.
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