401ks, SEPs and SIMPLEs: Which Plan is the Best?
You know there are several types of retirement savings accounts for your business, and you are wondering if there is a cost effective solution to this critical part of your benefit package. You have heard of 401ks, but what about SEPs and SIMPLEs? This article will help give you an overview of the plans and after reading it you will have some tools to use when discussing your best option with the Mundelein CPA firm of William E. Huml & Co. Certified Public Accountants.
In this article we will discuss the basics of determining a plan:
• How many employees does the company have?
• How much the contributions are allowed in the plan
The first plan covered is the SEP or Simplified Employee Pension plan. With the SEP plan, an IRA-like account is set up for all employees, including the employer. A SEP allows the employer to contribute directly to the SEP-IRA, with smaller start-up and ongoing costs in relation to conventional retirement plans. Contributions of up to 25 percent of each employee’s pay are allowed in the SEP. Like other pension plans, the growth of the contributions are tax sheltered and the contributions are tax deductable. Sole proprietors, partnerships, and corporations are able to use this plan.
The second plan covered is the SIMPLE or the Savings Incentive Match Plan for Employees. As with the SEP, an IRA-like account is set up for each employee by the employer. The main difference with the SIMPLE is that the employee determines how much of his or her salary to set aside into the plan with a limit of $11,500 for 2009. A term used to describe the contributed money is “salary deferral.” The employer then has the choice to contribute a dollar for dollar match of the employee’s yearly contribution (up to 3%) or a flat 2% to all employees that had yearly earnings of at least $5000. Tax wise, the contributions by the employee are pretax, but are taxed for Social Security, Medicare and Federal Unemployment Tax Act (FUTA). After the contributions are made, their growth is tax sheltered, allowing the same earnings to compound over time quicker than in a taxable account.
As with the SEP, the initial start-up and administration costs are low. There are a few limitations to what businesses may use a SIMPLE IRA plan as part of their benefit plan. First, the employer may not be using any other existing retirement plan. Second, the employer may not have more than 100 employees.
As you can see, there are more options than the traditional 401k that your business can use to provide a tax-advantaged retirement plan for you and your employees. If you would like to discuss further the best options for your tax advantaged retirement savings plans for your company you should contact William E. Huml & Co. Certified Public Accountants, serving Mundelein. This Mundelein CPA firm offers FREE consultations for individuals and business owners. They can be reached at (847) 918-9700, and would be happy to discuss what type of retirement plan will offer you, your company, and your employees the best tax-sheltering benefits. William E. Huml & Co. Certified Public Accountants is committed to the standards and ideals of the accounting professional and to the financial well-being of its clients.