Prepared for Sunil N. | Delivered February 3, 2020
Small Business Retirement Plan Options
To understand the benefits, costs and other notable information on employee retirement plan options for S Corp small businesses.
Simplified Employee Pension Individual Retirement Account
The Simplified Employee Pension Individual Retirement Account, also referred to as
, is a simple retirement plan that employers and self-employed persons can set up by simply completing IRS Form 5305-SEP and providing a copy to employees. They are
attractive to small businesses
because they are easy to set up and administer.
Employers can make contributions to employee SEPs on a
and receive a tax deduction for those contributions. Employers can decide on a yearly basis whether to contribute to the plan or not. This can be beneficial for new companies or during years of economic downturn. Employers can contribute up to
of an employees gross annual salary, capping at $57,000 annually.
SEP IRAs have
higher contribution limits
that traditional IRAs. Traditional IRAs have contribution limits between
annually compared to
annually for SEP IRAs.
Employers can receive
for setting up an SEP plan, as well as tax credit for plan expenses and contributions.
Contributions made to an SEP IRA are immediately vested, meaning employees can withdraw the funds at any time. Withdrawals are subject to a 10% penalty if the employee is under
age 59 1/2
Unlike traditional IRAs,
loans are not permitted
under a SEP IRA.
Vanguard SEP IRA
is considered one of the top IRA products available. Other
include Betterment, E-Trade, Fidelity, and TD Ameritrade.
A Savings Incentive Match PLan for Employees (
) is ideal for small businesses as they do not carry the
startup and operating costs
of traditional retirement plans.
The plan is
by filing Form 5304-SIMPLE or 5305-SIMPLE, however, an employer cannot have any other retirement plans available.
With the SIMPLE IRA, employers are required to contribute up to
of the employees compensation annually. If an employee elects not to contribute to their own account, employers may elect to contribute only up to
vested at the time of contribution, however, they are subject to a
if the funds are withdrawn before age 59 1/2 and a
if withdrawn within the first two years of participation.
SIMPLE IRA providers
include Ally Invest, E-Trade, and TD Ameritrade.
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