Comparison of Self Employed and Small Business Retirement Plans
| Individual 401k | SEP IRA | Defined Benefit Plans | Simple IRA | |
| Who is Eligible for this Retirement Plan? | Self employed individuals with no employees other than a spouse. Sole Proprietors, LLCs, Partnerships, S and C Corporations. |
Self employed individuals with no employees or small businesses with employees. Sole Proprietors, LLCs, Partnerships, S and C Corporations. |
Self employed individuals or small businesses owners with 4 or fewer full time employees. Sole Proprietors, LLCs, Partnerships, S and C Corporations. |
Companies with 100 or fewer employees. Sole Proprietors, LLCs, Partnerships, S and C Corporations. |
| Key Retirement Plan Features | Provides benefits similar to a traditional 401(k) with less administration. May permit greater contributions than SEP IRA, SIMPLE IRA or profit sharing plan without the rigid funding requirement of a Defined Benefit Plan. |
Easy to administer, low-cost. No IRS reporting required. No annual funding required. Employer must contribute to eligible employee accounts in any year that the plan is funded. |
Provides the maximum allowable tax deductible retirement plan contribution. |
Easy to administer, low-cost. No IRS reporting required. Largely funded by employee contributions, but limited employer contribution required. |
| Employee Contributions | Salary deferrals up to 100% of compensation up to $17,000 or $22,500 if age 50+ in 2012. |
None |
None |
Up to 100% of compensation up to $11,500 or $14,000 if age 50+ in 2012. |
| Employer Contributions | Profit sharing contributions up to 25% of compensation. In 2012 Individual 401k limit includes the salary deferral plus the profit sharing contribution with a combined limit of $50,000 or $55,500 if age 50+. |
100% employer funded Up to 25% of compensation with a maximum of $50,000 in 2012. |
100% employer funded The annual contribution is calculated annually by an actuary. Defined benefit plans provide the maximum allowable tax deductible retirement plan contribution. |
Employer's have a mandatory match and must select from 1 of 2 matching formulas. Match employee contributions dollar for dollar up to 3% (up to a maximum of $11,500 or $14,000 if age 50+ in 2012. A 2% match of employee compensation to all eligible employees regardless if the employee is electing to defer a portion of their salary or not (up to $5,000 in 2012). |
| Required Administrative Filings and Responsibilities | Must file IRS Form 5500 when plan assets are greater than $250,000. |
No employer tax filings. |
Annually an actuary makes calculations to determine the amount that needs to be contributed into the plan to ensure the target retirement income goal is reached. |
No employer tax filings. |
| Loan and Withdrawal Information | Tax free loans are permitted. 50% of the total 401k value can be borrowed up to a maximum of $50,000. |
Withdrawals prior to age 59 1/2 are permitted, but may be subject to a 10% penalty plus income taxes. |
Hardship withdrawals are not permitted. Loans are available if this feature is elected when the plan is adopted. Receiving a loan may increase the annual required contribution. |
Withdrawals prior to age 59 1/2 are permitted, but may be subject to a 25% penalty if taken within the first 2 years of participating in a SIMPLE IRA. Also, an additional 10% penalty may apply for withdrawals prior to age 59 1/2 in addition to ordinary income taxes. |
| Setup Deadlines | December 31st or fiscal year end. |
Personal tax filing deadline if a sole proprietor plus extensions or the business tax filing deadline if incorporated plus extensions. |
Must be set up by December 31st or fiscal year end. |
Must be established by October 1st. |
| More Information | Learn more about the Individual 401k. |
Learn more about the |
Learn more about the Defined Benefit Plan. |
Learn more about the SIMPLE IRA. |