Who Wants To Think About Retirement?
Though there are obstacles to retirement, there are also options. Whether your retirement days are near or far away, you should be aware of the types of retirement plans available to you and your employees. The most common are Individual Retirement Accounts (IRA), SEP, SIMPLE IRA, and 401(k). In addition to providing you with income during your retirement, these plans offer significant tax benefits today. Let’s review the different types of retirement plans in a bit more detail.
Individual Retirement Account (IRA):
IRA’s allow you to set aside money for your retirement. Banks, financial institutions, mutual funds and stockbrokers are among those who offer IRA accounts. There are two types of IRA’s: Traditional and Roth.
To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year and have taxable compensation greater than or equal to your contribution during the year. Contributions may be tax-deductible in full or in part, depending on your circumstances. The amounts earned by your IRA contributions are usually not taxed until you withdraw the money. Generally, you can’t withdraw money from your IRA before you reach age 59 1/2 without paying income taxes and a 10 percent penalty. There are exceptions to the 10% penalty, however.
Regardless of your age, you may be able to set up a Roth IRA. You cannot deduct your contributions for tax purposes, but if certain requirements are met, distributions will be tax-free.
For more information regarding IRA’s, see Publication 590, Individual Retirement Arrangements.
The Simplified Employee Pension (SEP) plan was specifically designed for small employers and has few administrative burdens or costs. Employer contributions are made directly to IRA’s that the employer sets up for the employees. For more information regarding SEP Plans, see Publication 4333, SEP Retirement Plans for Small Businesses.
Generally, employers can set up a Savings Incentive Match Plan for Employees (SIMPLE) if they have 100 or fewer employees and meet other requirements. A SIMPLE plan is an arrangement under which an employer makes contributions to employees’ SIMPLE retirement accounts. Additionally, employees can make salary reduction contributions.
The two types of SIMPLE plans are the SIMPLE IRA and SIMPLE 401(k). For more information regarding SIMPLE plans, see Publication 4334, SIMPLE IRA Plans for Small Businesses.
401(k) plans are the most popular type of retirement plan today. They can be a powerful tool in promoting financial security in retirement for employees and are a valuable option for businesses considering a retirement plan. Employees may defer a portion of their salary as either a pre-tax or an after-tax contribution. Depending on the type of 401(k) plan, the employer can make either non-elective or matching employer contributions. For more information regarding 401(k) plans, see Publication 4222, 401(k) Plans for Small Businesses.
For assistance in determining what type of plan might be best for you and your small business, see Publication 3998, Choosing a Retirement Solution for Your Small Business.
Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”
Post Footer automatically generated by Add Post Footer Plugin for wordpress.