401(k) & Small Business Plans

Small business retirement plans are tailored solutions designed to help business owners and their employees save for the future. These plans, such as 401(k)s, SIMPLE IRAs, and SEP IRAs, provide tax advantages, attract and retain top talent, and support long-term financial security. Whether you’re a sole proprietor or managing a growing team, we can guide you in selecting and implementing a retirement plan that aligns with your business goals and budget. Let us help you secure a brighter financial future for both you and your employees.

401(k)

Sometimes it seems as though everyone has a 401(k) plan these days. Did you ever consider getting one yourself but just don’t know how they work?  With a 401(k) plan, employees can choose to defer some of their salary. Instead of receiving that amount in their paycheck, the employee defers, or delays, getting that money. In this case, their deferred money is going into a 401(k) plan sponsored by their employer.  This deferred money generally is not taxed until it is distributed.

If you establish a 401(k) plan, you:

• Can have other retirement plans.
• Can be a business of any size.
• Need to annually file a Form 5500.

You can make a 401(k) plan as simple or as complex as you want to. A 401(k) plan that is pre-approved by the IRS might be just the thing to cut down on administrative headaches and expenses.

SEP IRA

A Simplified Employer Pension is easy to setup & even easier to administer. Each employee establishes their own SEP-IRA to which the employer contributions are made. Although the employer is not required to make a contribution each year, when one is made it must be contributed to all employees over the age of 21, part-time included, based on 25% of covered compensation.¹

The employees manage their own SEP-IRAs which can be invested in mutual funds, money market funds, or fixed investments. The funds are always 100% vested so they can be accessed immediately by the employee (subject to an early withdrawal penalty). Employees with SEP-IRAs can also invest in their own traditional or Roth IRA subject to some income limitations.

For employers, their only responsibility is to make the contribution by their tax filing deadline. There is no administration of the accounts and there is no forfeiture provision to manage.

SIMPLE Plan

In a SIMPLE Plan, employees establish their own IRA to which they can electively make tax deductible contributions. Employees who earn at least $5,000 during any two prior years as well as the current year are eligible to participate on a voluntary basis. The maximum amount that can be contributed is $16,000 or 100% of their compensation whichever is less. ²

Employee funds are 100% vested, however, in addition to the normal early withdrawal penalty of 10%, if a withdrawal is made within the first two years of participation, the penalty is 25% unless any exceptions apply.

The employer must match the employee’s contributions up to 3% of their elective deferral, or 2% of all compensation for all employees whether they defer or not. ³

There is another version of a SIMPLE called the 401(k) version which is structured much like the IRA version. The advantage of the 401(k) version to the employer is that it can establish stricter requirements for plan eligibility which could reduce the amount of matching contributions. The disadvantage is that the same ERISA reporting rules apply to a SIMPLE 401(k) as they do the regular 401(k), so it can be more costly to administer.

For additional information on small business retirement plans, contact us today.

_{This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.}

¹ _{Contributions are limited to 25% of an employee's compensation or $69,000 for 2024 ($76,500 if age 50 or older)..}
² _{$16,000 is the current maximum  for 2024 (1$9,500 if age 50 or older).} 
³ _{An employer may make less than the 3% contribution for two years out of five year period but it cannot be less than 1%.}

_{https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-401k-plan}