Small Business Retirement Plans
Help your colleagues, customers, or friends be well-informed.
2010 and 2011
| Traditional IRA | Roth IRA | SIMPLE IRA | SEP IRA | Individual 401(k) | |
| Participant contribution max | Lesser of earned income, or $5000* | Lesser of earned income, or $5000* | $11,500 | n/a | $16,500 |
| Participant catch-up, age 50+ | $1,000 | $1,000 | $2,500 | n/a | $5,500 |
| Max employer contribution (up to certain earnings limit) | n/a | n/a | Dollar-for-dollar match (including on catch-ups) up to 3% of comp | 25% of comp, up to $49k | 25% of comp (total 'ee and 'er contribution limited to lesser of $49k or 100% of comp, excluding catch-ups) |
| Plan must be established by | 4/15 after year-end | 4/15 after year-end | 1/1 - 10/1 of current year; No other plan allowed | Due date of return, including extensions | 12/31 of current year |
| Eligible participants | Earned income and AGI tests | Earned income and AGI tests | Comp of at least $5k in 2 prior years and for current year | Age 21; employed for 3 of 5 preceding years; comp at least $550 | Only owners and their employee-spouses; Can't have other employees |
| Administrative requirements | none | none | Annual notice to employees | Notice of plan adoption; No Form 5500 | IRS Form 5500; no discrimination testing |
* Subject to Adjusted Gross Income (AGI) limitations
Individual Retirement Accounts
An Individual Retirement Account (IRA) is one of the simplest vehicles for those who don’t want to, or can’t, set aside much money for retirement and aren’t trying to provide a benefit for employees.
If you don’t have enough earned income (i.e. net loss from your business), consider a spousal IRA. A deduction for a traditional IRA may depend on AGI limits. You don’t get a deduction for a Roth IRA contribution, but earnings could be tax-free in retirement.
SIMPLE IRA
A SIMPLE IRA is good for owners who want to put away more tax-deductible money for themselves, provide a vehicle for employees to make contributions and either: 1) want to provide some retirement plan contributions to employees, or 2) who can’t but don’t expect much employee participation to match. If no employees participate, there is nothing to match.
SEP IRA
A SEP IRA is the only plan you can set up in hindsight – after year-end. It also works well for those who can’t afford to make much in contributions for employees and have high turnover where most employees wouldn’t be eligible.
Individual 401(k)
An Individual 401(k) plan is only for businesses that have no employees eligible to participate besides the owner and his/her spouse. This plan type allows for the greatest contribution possibilities between the deferral and profit sharing contribution.
Putting a retirement plan in place gives you a wonderful vehicle for your own retirement savings while also helping you attract and retain good employees.
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