Choosing the Right Retirement Plan
What choices do I have? You might look at 401(k), profit sharing, SEP (Simplified Employee Pension) or SIMPLE (Savings Incentive Match Plan for Employees) plans.
Why should I consider a 401(k) plan? As you can see in the table below, offering your employees a 401(k) plan gives them the opportunity to save more on a pretax basis than the other types of plans. If your company also chooses to contribute to the plan, those contributions are tax deductible within certain limits.
But because a 401(k) offers flexible features, it may be more costly to administer than some other plans. A 401(k) requires annual reporting and, generally, annual testing to ensure that the plan does not discriminate in favor of highly compensated employees.
What advantages does a SEP or SIMPLE plan offer? SEP and SIMPLE plans are easy to set up and administer. With a SEP plan, your business contributes to individual retirement accounts established for you and your eligible employees. Within tax law limits, you choose how much you want to contribute for the year, if at all. Your employer contributions are tax deductible within certain limits.
SIMPLE plans generally are available to businesses with no more than 100 employees that don’t offer another retirement plan. They can be structured as a SIMPLE 401(k) or SIMPLE IRA plan. Employees can contribute to the plan. Although your company must contribute, those contributions are tax deductible.