Retirement Plans
Defined Contribution Plans
Defined contribution plans are tax-deferred retirement plans in which employees contribute a fixed amount or percentage of their paychecks to an account intended to fund retirement. The sponsor of the plan (you, the employer) has the ability, if desired, to match a portion of the employee contributions. These plans also have certain restrictions that define how and when employees can take withdrawals from their accounts without penalties.
401(k) Plan
A traditional 401(k) plan will allow your employees to contribute in a tax-deferred way, which helps to reduce their income taxes for the year the contribution was made. When they make withdrawals, unless structured as loans, the withdrawals will be taxed. Employees will have various investment choices within their accounts from the selection you as an employer decide to offer. There are maximum contribution limits for both employees and employers that may change every year
401(k) Plan
A traditional 401(k) plan will allow your employees to contribute in a tax-deferred way, which helps to reduce their income taxes for the year the contribution was made. When they make withdrawals, unless structured as loans, the withdrawals will be taxed. Employees will have various investment choices within their accounts from the selection you as an employer decide to offer. There are maximum contribution limits for both employees and employers that may change every year
Roth 401(k) Plan
A Roth 401(k) plan will allow your employees to contribute post-tax dollars to their accounts, which means there is no reduction in income taxes for these contributions. The benefit to your employee, is that growth on invested dollars is not taxed when future withdrawals happen. Just like in the Traditional 401(k), employees will have various investment choices within their accounts from the selection you as an employer decide to offer. There are maximum contribution limits for both employees and employers that may change every year.
403(b) Plan
A 403(b) Plan is also known as a tax-sheltered annuity plan. It can be offered to employees of public schools, tax-exempt 501(c)(3) organizations and churches. These plans act similarly for employees to the traditional 401(k). Employee contributions are tax-deferred, reducing their immediate income tax burden, and withdrawals are taxed at the bracket they are in when they make the withdrawal. The investment options are often more restrictive because of the commonly used variable annuity product which restricts some types of investments
403(b) Plan
A 403(b) Plan is also known as a tax-sheltered annuity plan. It can be offered to employees of public schools, tax-exempt 501(c)(3) organizations and churches. These plans act similarly for employees to the traditional 401(k). Employee contributions are tax-deferred, reducing their immediate income tax burden, and withdrawals are taxed at the bracket they are in when they make the withdrawal. The investment options are often more restrictive because of the commonly used variable annuity product which restricts some types of investments
SIMPLE IRA
This retirement account is employer-sponsored, like the ones above, but it is made specifically for small businesses with 100 or fewer employees. Small employers tend to choose a SIMPLE IRA over the above options because they are relatively easy to set up and the management costs are comparatively low. The contribution limits are lower than the above noted account-types, however, and the employer is required to contribute to each employee’s account, dollar for dollar, up to a certain percentage
SEP IRA
This account is a basic individual retirement account, very much like a traditional IRA, but SEP IRAs are specifically for self-employed people or small business owners with very few or no employees. Because the IRS may consider your employees eligible participants, for those participants you would have to contribute an equal percentage as you were contributing to your own account. For solo entrepreneurs though, the SEP IRA can be a very helpful, tax-deferred savings tool that will allow you to save nearly 10 times the amount you would ordinarily be able to save into a traditional IRA in one year.
SEP IRA
This account is a basic individual retirement account, very much like a traditional IRA, but SEP IRAs are specifically for self-employed people or small business owners with very few or no employees. Because the IRS may consider your employees eligible participants, for those participants you would have to contribute an equal percentage as you were contributing to your own account. For solo entrepreneurs though, the SEP IRA can be a very helpful, tax-deferred savings tool that will allow you to save nearly 10 times the amount you would ordinarily be able to save into a traditional IRA in one year.