Various Advantages of Different Types of Retirement Plans
Even a small business owner can easily set up a variety of retirement plans just by filling out necessary forms at financial institutions like a bank, insurance company, brokerage firm or a mutual fund. Then he can establish a qualified plan for himself/herself and can include other appropriate company employees who meet minimum participation standards. As an employer, the business owner can easily establish retirement plans and can make contributions to the plan he or she has established, in order to save tax-deferred funds for retirement, like any other employee. The retirement plan can be sponsored in order to gain tax advantages and also to enhance the loyalty of the employees.
Brief descriptions of Different Types of Retirement Plans Available are as given below:
Simplified Employee Pension Plan (SEP): These plans are employer-funded retirement accounts that allow small businesses to direct 3 percent to 15 percent of each employee's annual salary into tax-deferred retirement accounts discretely. SEP plans are easy to establish and less expensive to administer, as the employer can easily make his contributions to the retirement account established by the employees. The employees can themselves decide about making investment decisions regarding their own accounts. The employers have the freedom to make large contributions during good economic years and can reduce their contributions during hard times.
Savings Incentive Match plan For Employees (SIMPLE): This plan has two forms, a SIMPLE IRA and a SIMPLE 401(k) which were established in 1997 to businesses with 100 employees or less. They were intended to provide an easy and cost effective path to small businesses and their employees to contribute to tax-deferred retirement accounts. An IRA or 401(k) retirement plan, set up as a SIMPLE account requires the employer to match up to 3 percent of an employee's annual salary. Companies that establish these plans are not permitted to offer any other type of retirement plan.
Profit Sharing Plans: These plans enable employers to make a discreet, tax deductible contribution on behalf of employees annually. The total annual contribution is allocated among employees as a fraction of the compensation. Plan costs are tax deductible and plan earnings are tax deferred for the employer and the employee respectively.
Money Purchase Pension Plans: These plans have same features as that of regular profit sharing plans. The main advantage of the plan is its large contributions by the employer.
Thus, the above retirement plans and their features provide better insight of their working and the advantages that they give when availed.
Savings Incentive Match plan For Employees (SIMPLE): This plan has two forms, a SIMPLE IRA and a SIMPLE 401(k) which were established in 1997 to businesses with 100 employees or less. They were intended to provide an easy and cost effective path to small businesses and their employees to contribute to tax-deferred retirement accounts. An IRA or 401(k) retirement plan, set up as a SIMPLE account requires the employer to match up to 3 percent of an employee's annual salary. Companies that establish these plans are not permitted to offer any other type of retirement plan.
Profit Sharing Plans: These plans enable employers to make a discreet, tax deductible contribution on behalf of employees annually. The total annual contribution is allocated among employees as a fraction of the compensation. Plan costs are tax deductible and plan earnings are tax deferred for the employer and the employee respectively.
Money Purchase Pension Plans: These plans have same features as that of regular profit sharing plans. The main advantage of the plan is its large contributions by the employer.
Thus, the above retirement plans and their features provide better insight of their working and the advantages that they give when availed.