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Employer Sponsored Plans

Choosing a Retirement Plan

401(k) Plans

A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.

  • Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).
  • Employers can contribute to employees’ accounts.
  • Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).

SEP Plans

Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional (401k) retirement plan and allows for a contribution of up to 25 percent of each employee’s pay.

  • Available to any size business
  • Easily established by adopting Form 5305-SEP, a SEP prototype or an individually designed plan   document
    • If Form 5305-SEP is used, cannot have any other retirement plan (except another SEP)
  • No filing requirement for the employer
  • Only the employer contributes
    • To traditional IRAs (SEP-IRAs) set up for each eligible employee
    • Employee is always 100% vested in (or, has ownership of) all SEP-IRA money

SIMPLE IRA Plan

SIMPLE IRA plans are another way for employers and employees to set aside money in retirement accounts. SIMPLE IRA plans do not have the start-up and operating costs of a conventional retirement plan.

  • Available to any small business – generally with 100 or fewer employees
  • Easily established by adopting Form 5304-SIMPLE, 5305-SIMPLE, a SIMPLE IRA prototype or an individually designed plan document
  • Employer cannot have any other retirement plan
  • No filing requirement for the employer
  • Contributions:
    • Employer is required to contribute each year either a:
      • Matching contribution up to 3% of compensation (not limited by the annual compensation limit), or
      • 2% nonelective contribution for each eligible employee
        • Under the “nonelective” contribution formula, even if an eligible employee doesn’t contribute to his or her SIMPLE IRA, that employee must still receive an employer contribution to his or her SIMPLE IRA equal to 2% of his or her compensation up to the annual limit of $255,000 for 2013 (subject to cost-of-living adjustments in later years)
    • Employees may elect to contribute
    • Employee is always 100% vested in (or, has ownership of) all SIMPLE IRA money


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