Should you still have a 401k Plan?
Wednesday, December 22, 2010
The SIMPLE IRA is the retirement plan that fits the bill for many of Rhode Island’s small businesses with 25 or fewer employees. There is a matching requirement (1 to 3% of employee contributions), but most custodians have no charge for holding the plan assets. There are no testing requirements – owners and employees simply put money away on their own behalf and the company matches a percentage. For 2010, contributors were able to put away $11,500, plus another $2,500 if they’re over age 50.
Businesses that should consider: Law firms, Plumbing Companies, Real Estate brokers
The SEP IRA also avoids the complication and expense of the 401k, and may allow you to put more money away than the SIMPLE IRA. The SEP is ideal for husband-wife companies or for small businesses that want to reward faithful employees. This plan is entirely employer-funded (no employee contributions) and the business owner is not required to make a yearly contribution.
Businesses that should consider: Accounting firms, Mom and Pop Shops
Defined Benefit Plans
That’s right. The defined benefit plan does still exist. The DB plan allows for the maximum amount of money to be set aside for the employer. The participant’s annual retirement benefit is determined by a benefit formula (actuary required!) The maximum annually benefit at retirement is the lesser of $195,000 or 100% of highest 3 consecutive earning years. As you can imagine, this is the most cumbersome plan to maintain, but it also provides the highest benefit for high income business owners within 15 years of retirement.
Businesses that should consider: Sole practitioner doctors and attorneys
The IRS provides a very helpful Web site to navigate the various retirement plan choices at www.retirementplans.irs.gov