| Plan Type |
Ideal For |
Maximum Annual Contribution |
Eligibility |
Contribution Obligation |
Plan Set-Up Deadline |
Contribution Deadline |
Plan Features |
| Simplified Employee Pension (SEP) |
Smaller firm, Corporate or Non-Corporate seeking to minimize filings, paperwork, and overall cost |
The lesser of 25% of employee's net compensation or $44,000 (indexed for 2006) |
Any employee age 21 and older who has worked for the employer in any 3 of the preceding 5 years must be eligible |
Discretionary. An eligible participant shares in the current year contribution if they earned in excess of $450 (indexed for 2006) |
On or before employer's due date for filing federal tax returns (including extensions) |
On or before employer's due date for filing federal tax returns (including extensions) |
- Minimal IRS reporting and disclosure
- Employer contributions are 100% vested
|
| SIMPLE IRA (Savings Match Plan for Employees of small employers) |
Employer with 100 or fewer employees (earning $5,000 or more) during the past year wanting a plan that allows employee elective salary deferral contributions, requires minimal IRS reporting and has minimal cost |
Elective Salary deferral limit of $10,000 (indexed for 2006), with no limit as to percentage of compensation. Mandatory employer contribution to eligible participants. No additional contribution can be made |
Any employee who has earned $5,000 from the employer in any 2 preceding years and is expected to earn $5,000 in the current year must be eligible |
Elective Salary deferrals are not subject to non-discrimination tests. Mandatory employer contribution of either 3% or 2% non-elective to all eligible employees |
October 1 for start-up plans. Employees must have 60-day election period prior to January 1 (or the first day they are eligible) in which they can modify elections |
Salary deferrals should be deposited as soon as administratively feasible. Employer contribution deadline is On or before employer's due date for filing federal tax returns (including extensions) |
- Simple Implementation process
- Employer contributions are 100% vested
- Mandatory employer contribution
- May not combine with another plan
- $2,500 catch-up contribution available
|
| Profit Sharing Plan |
Employer seeking flexibility of discretionary contributions and the ability to impose a vesting schedule on these contributions |
Employer contribution is limited to 25% of total eligible compensation. Depending on the allocation method used, an individual participant could receive up to the lesser of 100% of compensation or $44,000 (indexed for 2006) |
Employees age 21 or older with one year (1,000 hours minimum) of service must be eligible if a vesting schedule is imposed. A two year eligibility period may be imposed if immediate vesting is provided |
Discretionary |
December 31 (or end of employer's tax year) |
On or before employer's due date for filing federal tax returns (including extensions) |
- Discretionary Contribution
- Requires IRS Form 5500 to be filed
- Plan costs may be minimized by using vesting schedule
|
| Age-weighted or comparability profit sharing plan |
Small business or professional practice wishing to favor either the older employees or a specific group of employees |
Employer contribution is limited to 25% of total eligible compensation. These allocation methods allow an individual participant to receive up to the lesser of 100% of compensation or $44,000 (indexed for 2006) |
Employees age 21 or older with one year (1,000 hours minimum) of service must be eligible if a vesting schedule is imposed. A two year eligibility period may be imposed if immediate vesting is provided |
Discretionary |
December 31 (or end of employer's tax year) |
On or before employer's due date for filing federal tax returns (including extensions) |
- Discretionary Contribution
- Requires IRS Form 5500 to be filed
- Allocation favors older and/or key employees
- Custom-designed plan with higher start-up costs
|
| 401(k) |
Employer with more than 25 employees wanting a plan that allows employee elective salary deferrals |
Elective salary deferral limit of $15,500 (indexed for 2007). Overall individual limit (deferrals plus employer contributions) is 100% of compensation up to $45,000 (indexed for 2007). Employer contribution limit (not including deferrals) is 25% of eligible Payroll |
Employees age 21 or older with one year (1,000 hours minimum) of service must be eligible if a vesting schedule is imposed on employer contributions. See Profit sharing section as to eligibility for employer contributions. |
Elective Salary deferrals optional but subject to non-discrimination test. Employer may choose to match employee elective deferrals and / or make a discretionary profit sharing contribution |
December 31 (or end of employer's tax year) |
Salary deferrals should be deposited as soon as administratively feasible. Employer contribution deadline is On or before employer's due date for filing federal tax returns (including extensions) |
- Employee salary deferral reduces taxable income
- May offer participant direction of investments
- Employee contributions are immediately 100% vested
- Plan may shift costs from the employer to the employee, thereby reducing overall plan cost
- Requires IRS Form 5500 to be filed
- $5,000 catch-up contribution available (2007)
|
| Safe-Harbor 401(k) |
employer with fewer than 30 employees wanting a plan that allows employee elective salary deferrals, without the non-discrimination testing |
Elective salary deferral limit of $15,500 (indexed for 2007). Overall individual limit (deferrals plus employer contributions) is 100% of compensation up to $45,000 (indexed for 2007). Employer contribution limit (not including deferrals) is 25% of eligible Payroll |
Employees age 21 or older with one year (1,000 hours minimum) of service must be eligible if a vesting schedule is imposed on employer contributions. See Profit sharing section as to eligibility for employer contributions. |
Elective salary deferrals are not subject to non-discrimination tests. Mandatory employer contribution of either 3% non-elective to all eligible employees or match of up to 4% |
October 1 of year in which plan is started. Employees must have election period of 30 to 90 days immediately preceding January 1 (or the first day they are eligible) in which they can modify elections |
Salary deferrals should be deposited as soon as administratively feasible. Employer contribution deadline is On or before employer's due date for filing federal tax returns (including extensions) |
- $15,500 elective salary deferral limit (indexed for 2007) without ADP testing
- Mandatory employer contributions are 100% vested
- Contribution format must be disclosed during 60 day notification period
- $5,000 catch-up contribution available (2007)
|
| Owner Only / one-person 401(k) |
Employers where the only employees are owners / shareholders and their spouses, earning less than $164,000 each, and seeking to maximize employer contributions |
Elective salary deferral limit of $15,500 (indexed for 2007). Overall individual limit (deferrals plus employer contributions) is 100% of compensation up to $45,000 (indexed for 2007). Employer contribution limit (not including deferrals) is 25% of eligible Payroll |
Employees age 21 or older with one year (1,000 hours minimum) of service must be eligible if a vesting schedule is imposed on employer contributions. See Profit sharing section as to eligibility for employer contributions. |
Discretionary |
December 31 (or end of employer's tax year) |
Salary deferrals should be deposited as soon as administratively feasible. Employer contribution deadline is On or before employer's due date for filing federal tax returns (including extensions) |
- May offer participant direction of investments
- Allows vesting schedule
- Requires IRS Form 5500 to be filed ONLY after assets exceed $100,000 or any employee other than an owner or owner's spouse enters the plan
- $5,000 catch-up contribution available (2007)
- Owner / employee can maximize contribution with minimal salary
|
| Defined Benefit Plan |
Employer wanting to offer a fixed benefit or to favor older employees. Ideal for a small business owner at least 50 years of age who never sponsored any type of retirement plan |
An Actuarially calculated amount, based on a benefit not to exceed 100% of a participant's highest 3-year average compensation, up to $180,000 (indexed for 2007) |
Employees age 21 or older with one year of service must be eligible if a vesting schedule is imposed on employer contributions. See Profit sharing section as to eligibility for employer contributions. |
Mandatory, based on specified benefit formula. Actual amount is determined by an actuary and requires quarterly minimum contributions |
December 31 (or end of employer's tax year) |
On or before employer's due date for filing federal tax returns (including extensions) |
- Employer promises a specific established level of benefits to employees at retirement
- Individual participants can exceed the $45,000 limit (IRS Section 415) imposed by defined contribution plans
- Requires annual actuarial valuation and review
- Requires IRS Form 5500 to be filed
|
