Choosing A Retirement Solution

Types of Plans

So, you're ready to establish a plan. But how do you know which plan is right for you and the unique needs of your business?

To help you take the first step to finding the right plan for your business, you'll find below a simple summary of the key features and advantages of some of the most common retirement plans.

Once you've reviewed the basics of the plans available and are ready to take the next step, visit Choose a Plan. By answering a few simple questions about your business, our interactive plan finder will help you choose a plan you can then discuss with your accountant, tax consultant or financial advisor. If you are an accountant with small business clients, you may want to use the plan finder on behalf of a client.

Note: These summaries compare the relative administrative expense and complexity of each type of plan to the rest of the group. Plans may contain various features, such as a profit sharing plan with a 401 (k) feature. You may also, in certain circumstances, combine plans.

If you'd like more details about the plans, the U.S. Department of Labor has created a site you may find helpful in comparing the features and advantages of different retirement plans. To find it, just go to the U.S. Department of Labor's Small Business Retirement Savings Advisor.

401 (k) Plan Overview:

Who Can Offer This Plan: Any size business.
Advantage: Allows greater employee payroll deduction contributions than most other plans and, if the employer chooses, employees may direct the investment of their assets. Appropriate for larger companies who want to share plan funding with their employees. May be combined with employer profit sharing.
Administrative Expense: Moderate to High.
Administrative Complexity: Moderate to High.
Funding: Pretax employee contributions, and if chosen by the employer, employer matching contributions.
Annual Contribution Limits: Employee: $17,500 in 2013. Employer and Employee Combined: Lesser of 100% of the participant's compensation or $51,000 in 2013.
Annual Catch-up Contribution Limits: Employees age 50 and older can defer an additional "catch-up" contribution of up to $5,500 in 2013.
Annual Deduction Limit:
Company can only contribute and deduct up to 25% of total participant compensation. Included in this 25% are employee pre-tax contributions.
Participant Loans: Participant loans may be a feature of the plan.
In-service Withdrawals: In-service withdrawals for hardship or after age 59 1/2 may be a feature of the plan.
Vesting: Immediate for employee contributions. Employer matching contributions may vest immediately or over years of service not to exceed six years.

Safe Harbor 401(k) Plan Overview

Who Can Offer This Plan:  Any size business.
Advantage:  Permits a high level of salary deferrals by employees without requiring annual nondiscrimination testing provided employer meets requirements including match or contribution. 
Administrative Expense:  Moderate
Administrative Complexity: Moderate
Funding:  Pretax employee contributions and mandatory employer contributions.
Annual Contribution LimitsEmployee: $17,500 in 2013.  Employer and Employee Combined:  Lesser of 100% of the participant’s compensation or $51,000 in 2013, subject to cost-of-living increases in subsequent years.
Annual Catch-up Contribution Limits:  Employees age 50 and older can defer an additional "catch-up" contribution of up to $5,500 in 2013, subject to cost-of-living increases in subsequent years.
Annual Deduction Limit:
  Company can only contribute and deduct up to 25% of total participant compensation. Included in this 25% are employee pre-tax contributions.
Participant Loans: Participant loans may be a feature of the plan.
In-service Withdrawals: In-service withdrawals for hardship or after age 59 1/2 may be a feature of the plan.
Vesting: Immediate for employee contributions. Mandatory employer contributions vest immediately.  If there are additional, non-mandatory employer contributions, these may vest over years of service not to exceed six years.

Automatic Enrollment 401(k) Plan Overview

Who Can Offer This Plan:  Any size business.
Advantage:  Permits a high level of salary deferrals by employees and increases participation.
Administrative Expense: Moderate
Administrative Complexity: Moderate
Funding:  Pretax employee contributions and employer contributions.
Annual Contribution LimitsEmployee: $17,500 in 2013.  Employer and Employee Combined:  Lesser of 100% of the participant’s compensation or $51,000 in 2013.
Annual Catch-up Contribution Limits:  Employees age 50 and older can defer an additional $5,500 "catch-up" contribution in 2013.
Annual Deduction Limit: Company can only contribute and deduct up to 25% of total participant compensation. Included in this 25% are employee pre-tax contributions.
Participant Loans: Participant loans may be a feature of the plan.
In-service Withdrawals: In-service withdrawals for hardship or after age 59 1/2 may be a feature of the plan.  In addition, an automatic enrollment 401(k) plan set up as an eligible automatic contribution arrangement (EACA) or a qualified automatic contribution arrangement (QACA) allows withdrawal of automatic contributions and earnings within 90 days after the participant’s first automatic contribution. 
Vesting: Immediate for employee contributions. Employer contributions vest over years of service not to exceed six years.

403 (b) Plan Overview:

Who Can Offer This Plan: Public schools, colleges, universities, churches, hospitals, or other tax exempt entities organized under Section 501(c)(3) of the Internal Revenue Code.
Advantage: Allows greater employee payroll reduction contributions than most other plans and, if the employer chooses, employees may direct the investment of their assets. Appropriate for larger companies who want to share plan funding with their employees.
Administrative Expense: Moderate. However, expense depends on the degree of employer involvement.
Administrative Complexity: Low. However, expense depends on the degree of employer involvement.
Funding:Pretax employee contributions, employer contributions, and if chosen by the employer - employer matching contributions.
Annual Contribution Limits: Employee: $17,500 in 2013.  Employer and Employee Combined: Lesser of 100% of the participant's compensation or $51,000 in 2013, although can be exceeded for certain long service employees or certain entities.
Annual Catch-up Contribution Limits: Employees age 50 and older can defer an additional "catch-up" contribution of up to $5,500 for 2013.
Annual Deduction Limit:
Not applicable for tax exempt employers.
Participant Loans:
Participant loans may be a feature of the plan.
In-service Withdrawals:
In-service withdrawals may be a feature of the plan, but employee contributions can only be withdrawn for hardship or after age 59 1/2.
Vesting: Immediate for employee contributions. Employer contributions may vest immediately or over years of service not to exceed six years.

Profit Sharing Plan Overview:

Who Can Offer This Plan: Any size business.
Advantage: Employers have flexibility to vary the annual contributions. Appropriate for businesses with unpredictable cash flow.
Administrative Expense: Moderate.
Administrative Complexity: Low.
Funding:
Employer contributions.
Annual Contribution Limits: Total contributions to a participant's account are limited to the lesser of 100% of the participant's compensation or $51,000 in 2013.
Annual Deduction Limit:
Company can only deduct up to 25% of compensation of all plan participants.
In-service Withdrawals: In-service withdrawals may be a feature of the plan.
Vesting: Immediate or may vest over years of service not to exceed six years.

SEP-IRA Plan Overview:

Who Can Offer This Plan: Any size business that doesn't currently offer a retirement plan.
Advantage:
Low cost, easy to set up and maintain, employer has flexibility to vary annual contributions. Appropriate for businesses with unpredictable cash flow.
Administrative Expense: Low.
Administrative Complexity: Minimal.
Funding: Employer contributions.
Annual Contribution Limits: Total contributions to a participant's account are limited to the lesser of 25% of the participant's compensation or $51,000 in 2013.
Annual Deduction Limit: Company can deduct contributions up to 25% of compensation of all plan participants.
Participant Loans: Not permitted.
In-service Withdrawals: Must be permitted.
Vesting: Must be 100% immediate.

SIMPLE-IRA Plan Overview:

Who Can Offer This Plan: A business with 100 or fewer employees that doesn't currently offer a retirement plan.
Advantage: An easy and affordable plan with few administrative responsibilities, employer flexibility to vary annual contributions. Appropriate for employers who want to share the funding of a plan with employees, while still maintaining some flexibility in employer contributions.
Administrative Expense:
Low.
Administrative Complexity: Minimal.
Funding: Pre-tax employee contributions and annual required contributions.
Annual Contribution Limits: Employee: $12,000 per year in 2013. Employer: 100% matching contributions up to 3% of pay, not to exceed $12,000 in 2013, or employer contribution of 2% of each participant's compensation up to $5,100 in 2013.
Annual Catch-up Contribution Limits: Employees age 50 and older can defer an additional "catch-up" contribution of up to $2,500 for 2013.
Annual Deduction Limit:
Employer deductible contribution maximum is 3% of compensation up to $12,000 in 2013.
Participant Loans: Not permitted.
In-service Withdrawals: Permitted.
Vesting: Must be 100% immediate.

Defined Benefit Plan Overview:

Who Can Offer This Plan: Any size business.
Advantage: Allows employers to contribute more than other retirement plans. Allows employers to provide substantial predictable, retirement benefits based on a formula in the plan. Can produce a substantial retirement fund in a few years and is appropriate for employers who can make contributions based on actuarial calculations of the amounts necessary to pay the promised benefit.
Administrative Expense: Higher than defined contribution plans.
Administrative Complexity: High.
Funding: Generally employer contributions.
Annual Contribution Limits: Employer's maximum and minimum contribution is determined actuarially and must be sufficient to pay the participant's benefits as they come due in future years. Participant Loans: Generally not a feature of the plan.
In-service Withdrawals: Not permitted.
Vesting: Immediate or may vest over years of service not to exceed seven years.

Note: Defined Benefit Plans are not included in the Choose a Plan Section. The gathering of information necessary to help you determine the appropriateness of this plan for your business falls outside the scope of this site. We encourage you, however, to discuss with your accountant or other financial advisor whether a defined benefit plan would be a good option for your employees. To learn more about defined benefit plans please visit http://www.dol.gov/elaws/pwbaplan.htm.

Now You're Ready To Choose a Plan...

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