Retirement Saving Plans Options

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Features \ Options

Payroll Deduction IRA

SEP-IRA

SIMPLE-IRA

Profit Sharing

 

Key Advantage

Easy to set up and maintain

Easy to set up and maintain.

Salary reduction plan with little administrative paperwork

Permits employer to make large contributions for employees.

Employers Who
Can Provide
This Option

Any business with one or more employees.

Any business that does not currently maintain any other retirement plan.

Any business with 100 or fewer employees that does not currently maintain any other retirement plan.

Any business with one or more employees.

 

 

Employer's Responsibilities

 

Set up arrangements for employees to make payroll deduction contributions. Transmit contributions for employees to funding vehicle. No employer tax filing required

May set up plan by completing IRS Form 5305-SEP. No employer tax filing required.

May set up by completing IRS Form 5304-SIMPLE or 5305-SIMPLE. No employer tax filing required. Bank or financial institution does most of the paperwork

There is no model form to establish a plan. Advice from a financial institution or employee benefit advisor would be necessary. Annual filing of IRS Form 5500 is required.

 

Funding Responsibility

 

Employee contributions remitted through payroll deduction.

Employer contributions only.

Employee salary reduction contributions and/or employer contributions.

Employer contribution level can be determined year to year.

 

Maximum Annual ContributionPer Participant

$4,000 for 2007; $5,000 for 2008. Additional contributions can be made by participants age 50 or over.

Up to 25% of compensation1 or a maximum of $45,000 for 2007.

Employee: Up to $10,500 in 2007. Additional contributions can be made by participants age 50 or over. Employer: Either match employee contributions $ for $ up to 3% of compensation (can be reduced to as low as 1% in any 2 out of 5 yrs.) or contribute 2% of each eligible employee's compensation, up to $4,5002.

Contributions per participant up to the lesser of 100% of compensation1 or $45,000 for 2007. Employer can deduct amounts that do not exceed 25% of aggregate compensation for all participants.

 

Minimum Employee Coverage Requirements

Should be made available to all employees.

Must be offered to all employees who are at least 21 years of age, employed by the business for 3 of last 5 years and earned at least $500 in a year for 2007.

Must be offered to all employees who have earned at least $5,000 in previous 2 years, and are reasonably expected to earn at least $5,000 in the current year.

Generally, must be offered to all employees at least 21 years of age who worked at least 1,000 hours in previous year.

 

Withdrawals,Loans and Payments

 

Withdrawals at anytime ; subject to current federal income taxes and a possible 10% penalty if the participant is under age 59 1/2.

Withdrawals at anytime; subject to current federal income taxes and a possible 10% penalty if the participant is under age 59 1/2.

Withdrawals at any time subject to current federal income taxes. If employee is under age 59 1/2, may be subject to a 25% penalty if taken within the first 2 years of participation and a possible 10% penalty if taken afterwards.

May permit loans and hardship withdrawals. Hardship withdrawals may be subject to a possible 10% penalty if participant is under age 59 1/2. Payment of benefits generally at retirement.

 

Vesting

 

Immediate 100%

Immediate 100%

Employee salary reduction contributions and employer contributions vested 100% immediately.

May vest over time according to plan terms.

 

Contributor's
Options

 

Employee can decide how much to contribute at any time.

Employer can decide whether or not to make contributions year to year.

Employee can decide how much to contribute. Employer must make matching contributions or contribute 2% of each employee's salary up to the set maximum.

Employer makes contribution as set by plan terms.

Features \ Options

Payroll Deduction IRA

SEP-IRA

SIMPLE-IRA

Profit Sharing

 

*All retirement plan limits stated are for 2006 and subject to annual cost of living adjustments. Catch-up limit refers to additional investments permitted by employees 50 years of age or older

The information contained in this table is based on current interpretation of the law. Where IRS guidance is pending, assumptions have been made. Seek tax advice for additional rules and complete information.

1 Maximum compensation on which 2007 contributions can be based is $225,000. 2 Maximum compensation on which 2007 employer 2% non-elective contributions can be based is $225,000.

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