Small business guide 2009
small business
Small-business retirement plans

Under a SEP, you, the employer, make contributions to traditional IRAs (SEP-IRAs) set up for each of your eligible employees. A SEP is funded solely by employer contributions. Each employee is always 100-percent vested in (or has ownership of) all money in his or her SEP-IRA.

A SEP IRA cannot be structured as a Roth IRA, but employer contributions to a SEP IRA does not limit the employee's ability to contribute to a Roth IRA.

There are three basic steps in setting up a SEP:

  1. You must execute a formal written agreement to provide benefits to all eligible employees.
  2. You must give each eligible employee certain information about the SEP.
  3. A SEP-IRA must be set up by or for each eligible employee.

Savings Incentive Match Plan for Employees (SIMPLE) 

A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. This type of retirement plan is for either the self-employed or businesses with fewer than 100 employees. Both the employer and the employee may make contributions. SIMPLE plans can be structured as a SIMPLE IRA or as a SIMPLE 401(k) plan.

SIMPLE IRA:You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you in the preceding year and you do not maintain another qualified plan -- unless the other plan is for collective bargaining employees. 

Under this rule, you must take into account all employees employed at any time during the calendar year, regardless of whether they are eligible to participate. After setting up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan, although there is a grace period of two years immediately following the calendar year you last met the standard.

You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3 percent of the employee's compensation. This rule does not apply if you make non-elective contributions to the employee's account.

SIMPLE 401(k) Plan: You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as defined by the IRS. A SIMPLE 401(k) plan is a qualified retirement plan and generally has to satisfy the qualification rules. The SIMPLE 401(k) plan does have some leeway concerning the nondiscrimination and top-heavy rules of a qualified plan, if the plan meets certain other conditions concerning contributions and the employee's rights to those contributions.

Keogh plan 

A Keogh plan, more formally known as a HR 10 plan, is a tax-deferred retirement plan for self-employed individuals who can deposit up to 20 percent of earnings and deduct the contributions from current income. Funds are taxed at withdrawal, which is restricted until age 59½. A Keogh plan is a qualified plan and can be structured as either a defined benefit or a defined contribution plan. Employees of the self-employed individuals must participate in the plan.

Payroll deduction IRA 

Not really an employer plan, it allows employees to fund an IRA or Roth IRA account  by means of a payroll deduction at work.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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