Business Retirement Plans
| ELIGIBLE EMPLOYERS | SIMPLE IRA | 100 or fewer employees earning $5000 or more. Governmental and tax-exempt employers allowed. |
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| SEP IRA | Any size employer. Governmental and tax-exempt employers allowed. | |
| 403(b) PLAN TSA | Tax-exempt 501(c)(3) employers. e.g. educational organizations, churches, tax-exempt hospitals, schools, charities. | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Any size employer. Governmental and tax-exempts not allowed. | |
| 401(k) | Any size employer. Tax-exempts allowed. Governmental not allowed. | |
| ELIGIBLE EMPLOYEES | SIMPLE IRA | Employees who earned at least $5000. Exclusion allowed for collectively-bargained, nonresident aliens, and employees hired during prior year. |
| SEP IRA | Employees who are at least 21, who worked for the employer 3 or more years in the last 5, and who received at least $450. Exclusion allowed for collectively-bargained and nonresident aliens. | |
| 403(b) PLAN TSA | Employees of a public educational institution; Tax-exempt 501(c)(3) organization; or a church organization. Need not cover employees working less than 1,000 hours (approximately 20 hours per week). | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Employees who are at least 21, and have at least one year of service. Need not cover seasonal or employees working less than 1,000 hours. Can require two year wait if employer provides immediate 100% vesting. | |
| 401(k) | Employees who are at least 21, and have at least one year of service. Need not cover seasonal or employees working less than 1,000 hours. | |
| ADVANTAGES (for Plan Owner) | SIMPLE IRA |
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| SEP IRA |
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| 403(b) PLAN TSA |
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| MONEY PURCHASE / PROFIT SHARING (KEOGH) |
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| 401(k) |
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| CONTRIBUTION LIMIT | SIMPLE IRA | 2003 $16,000 under 50 years; $17,000 over 50 years with $1000 catch-up. (100% employer matching @ 3% of compensation and $8000 for employee salary deferral.) Requires $266,666 or more to get to $16,000 maximum. 2004 $18,000 under 50 years; $19,500 over 50 years with $1500 catch-up. (100% employer matching @ 3% of compensation and $9000 for employee salary deferral.) Requires $300,000 or more to get to $18,000 maximum |
| SEP IRA | 2003 Employee (Employer Contribution for Employee): Lesser of 25% of compensation or $40,000 Employer: Lesser of 25% of compensation or $40,000 (if self-employed and using net earnings method) Note: see Special Taxation Issues section. 2004 Employee (Employer Contribution for Employee): Lesser of 25% of compensation or $41,000 Employer: Lesser of 25% of compensation or $41,000 (if self-employed and using net earnings method) Note: see Special Taxation Issues section |
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| 403(b) PLAN TSA | 2003 Lesser of 100% of compensation or $12,000. Employees 50 years or over may contribute an additional $2000 as catch-up for a total of $14,000. Employees who have been with their employer for at least 15 years may defer an extra $3000 per year. Note: see Special Taxation Issues section 2004 Lesser of 100% of compensation or $13,000 salary deferral limit. For employees age 50 or over, there is a $3000 catch-up provision, allowing a salary deferral limit of $16,000. Employees who have been with their employer for at least 15 years may defer an extra $3000 per year. Note: see Special Taxation Issues section | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | 2003 Profit Sharing: Lesser of 100% of compensation up to $40,000. Money Purchase: Lesser of 100% of compensation or $40,000. Total for both plans: Lesser of $40,000/100% per employee. Note: see Special Taxation Issues section 2004 Profit Sharing: 100% of compensation up to $41,000. Money Purchase: Lesser of 100% of compensation or $41,000. Total for both plans: $41,000/100% per employee. Note: see Special Taxation Issues section |
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| 401(k) | 2003 $12,000 salary deferral limit. For employees age 50 or over, there is a $2000 catch-up provision, allowing a salary deferral limit of $14,000. Company can add a matching contribution. Total employee/employer contribution limit is lesser of 100% of salary or $40,000. Note: see Special Taxation Issues section 2004 $13,000 salary deferral limit. For employees age 50 or over, there is a $3000 catch-up provision, allowing a salary deferral limit of $16,000. Company can add a matching contribution. Total employee/employer contribution limit is lesser of 100% of salary or $41,000. Note: see Special Taxation Issues section |
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| COMPENSATION | SIMPLE IRA | 2003 $200,000 (for non-elective contributions equaling 2% of employee compensation) or Dollar-for-dollar match of up to 3% of employee compensation. 2004 $205,000 (for non-elective contributions equaling 2% of employee compensation) or Dollar-for-dollar match of up to 3% of employee compensation. |
| SEP IRA | 2003: $200,000 2004: $205,000 |
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| 403(b) PLAN TSA | Determining the compensation limit for a 403(b) account can be complicated. See plan administrator. | |
| MOPNEY PURCHASE / PROFIT SHARING (KEOGH) | 2003: $200,000 2004: $205,000 |
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| 401(k) | 2003: $200,000 2004: $205,000 |
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| REQUIRED EMPLOYER CONTRIBUTIONS | SIMPLE IRA | Choice of a 2% of compensation contribution for all eligible employees (regardless of whether they defer any compensation) or a 3% of compensation matching contribution (that can go as low as 1% in 2 out of 5 years). |
| SEP IRA | None; completely discretionary, but employer funds 100% of contribution in years when contributions are made. | |
| 403(b) PLAN TSA | No | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Money Purchase: Yes Profit Sharing: No |
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| 401(k) | None; Can add employer match, either mandatory or discretionary | |
| MAXIMUM EMPLOYER CONTRIBUTION PER EMPLOYEE | SIMPLE IRA | 2003: $8000 2004: $9000 |
| SEP IRA | 2003 Employee (Employer Contribution for Employee): Lesser of 100% of compensation or $40,000 Employer: Lesser of 100% of compensation or $40,000 (if self-employed and using net earnings method) 2004 Employee (Employer Contribution for Employee): Lesser of 100% of compensation or $41,000 Employer: Lesser of 100% of compensation or $41,000 (if self-employed and using net earnings method) | |
| 403(b) PLAN TSA | Extremely complex 5 step calculation. See plan administrator. | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | 2003 Profit Sharing: Lesser of 100% of compensation up to $40,000. Money Purchase: Lesser of 100% of compensation or $40,000. Total for both plans: Lesser of $40,000/100% per employee. 2004 Money purchase: Lesser of 100% of compensation or $41,000 Profit Sharing: Lesser of 100% of compensation or $41,000 Total for both plans $41,000/100% per employee |
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| 401(k) | 2003 Lesser of 100% of compensation or $40,000 (must include salary deferrals in test) 2004 Lesser of 100% of compensation or $41,000 (must include salary deferrals in test) |
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| EMPLOYEE DEFERRAL LIMIT EMPLOYEE DEFERRAL LIMIT | SIMPLE IRA | 2003: $8000 2004: $9000 |
| SEP IRA | No deferrals allowed | |
| 403(b) PLAN TSA | 2003: $12,000 2004: $13,000 |
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| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Yes, can have a 401(k) provision | |
| 401(k) | 2003: $12,000 2004: $13,000 |
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| SPECIAL INCOME TAX ISSUES | SIMPLE IRA | The taxation of SIMPLE IRA plans is the same as under a traditional IRA; generally contributions are not taxable until withdrawn. The early tax penalty - withdrawing money before age 59 ½ - however, is increased to 25% during the first two years of participation. After that the early withdrawal penalty is 10%. Rollovers from one SIMPLE IRA to another are permitted, but rollovers to a traditional IRA are permitted without penalty only after two years of participation. |
| SEP IRA | 2003 An employer may contribute up to $40,000 or 100% of an employee’s compensation, whichever is less, annually to each qualifying employee’s IRA. The deduction limit for employers is the lesser of 25% of compensation or $40,000. 2004 An employer may contribute up to $41,000 or 25% of an employee’s compensation, whichever is less, annually to each qualifying employee’s IRA. The deduction limit for employers is 25% of compensation or $41,000 whichever is less. |
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| 403(b) PLAN TSA | 2003 403(b) plan participants will be allowed to contribute up to $12,000, or up to 100% of compensation, whichever is less. For those who have employer contributions, limits are the lesser of $40,000 or 100% of compensation, however, the deduction limit for employers is the lesser of 25% of compensation or $40,000. 2004 403(b) plan participants will be allowed to contribute up to $13,000, or up to 100% of compensation, whichever is less. For those who have employer contributions, limits are either $41,000 or 100% of compensation, whichever is less but the deduction limit for employers is 25% of compensation or $41,000, again, whichever is less. |
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| MONEY PURCHASE / PROFIT SHARING (KEOGH) | 2003 Employees can contribute their full salary as long as contributions do not exceed $40,000. However, the deduction limit for employers is 25% of compensation or $40,000 whichever is less. 2004 Employees can contribute their full salary as long as contributions do not exceed $41,000. However, the deduction limit for employers is 25% of compensation or $41,000 whichever is less. |
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| 401(k) | 2003 Employees can contribute their full salary as long as contributions do not exceed $40,000. However, the deduction limit for employers is 25% of compensation or $40,000 whichever is less. 2004 Employees can contribute their full salary as long as contributions do not exceed $41,000. However, the deduction limit for employers is 25% of compensation or $41,000 whichever is less. |
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| VESTING | SIMPLE IRA | 100% immediately |
| SEP IRA | 100% immediately | |
| 403(b) PLAN TSA | 100% for salary deferrals. For employer contribution multi-year schedule may be used. | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Plan may require vesting schedule of several years. | |
| 401(k) | Plan may require vesting schedule of several years for company match. 100% for salary deferrals. | |
| PLAN YEAR | SIMPLE IRA | Must be calendar year |
| SEP IRA | Calendar year (or the employer's fiscal year, if non-model plan is used). | |
| 403(b) PLAN TSA | Calendar Year | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Employer's fiscal year or calendar year | |
| 401(k) | Employer's fiscal year or calendar year | |
| IRS FILING | SIMPLE IRA | No |
| SEP IRA | None to IRS, However, Form 5305 must be kept on file by the business owner. | |
| 403(b) PLAN TSA | Government or church based- no. Others- Form 5500 (not required if employer only permits salary deferrals and minimal employer involvement). | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Yes, Form 5500 | |
| 401(k) | Yes, Form 5500 | |
| DEADLINE FOR SETTING UP PLAN DEADLINE FOR SETTING UP PLAN | SIMPLE IRA | October 1 |
| SEP IRA | By tax filing date, plus extensions | |
| 403(b) PLAN TSA | By tax year-end (prior to any salary deferrals) | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | By tax year-end | |
| 401(k) | By tax year-end (prior to any salary deferrals) | |
| HARDSHIP WITHDRAWALS or LOANS ALLOWED HARDSHIP WITHDRAWALS or LOANS ALLOWED | SIMPLE IRA | No |
| SEP IRA | No | |
| 403(b) PLAN TSA | Yes, per plan | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | Yes, per plan | |
| 401(k) | Yes, per plan | |
| NON-DISCRIMINATION TESTING | SIMPLE IRA | No |
| SEP IRA | No | |
| 403(b) PLAN TSA | Yes (applies only to employer contributions for nongovernment employers) | |
| MONEY PURCHASE / PROFIT SHARING (KEOGH) | No | |
| 401(k) | Yes |
Sources
- Tax Action Memo, A SIMPLE OR A SEP-WHICH SHOULD IT BE?, TAM-559, Practitioners Publishing Co., July 22, 1997.
- HIGHLIGHTS OF THE TAXPAYER RELIEF ACT OF 1997, Alexandra Armstrong, CFP, Better Investing October 1997. 401(k) PLANS, Marketing One Inc., 1993.
- PENSION PLANS FOR SMALL BUSINESSES, Marketing One, Inc., October 7, 1994.
- IRS release Release No: IR-2002-111 For Release: 10/18/02
- ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001
- JOB CREATION AND WORKER ASSISTANCE ACT OF 2002
- IRS Press Release; IR-2003-122, Oct.16, 2003
The information provided here has been taken from third party sources and is deemed to be reliable, but is not guaranteed. It is believed to be accurate at the time of printing, but is subject to change at any time. It is provided for informational purposes only, and you should consult with a tax/legal advisor for further information.
Please note that neither ING nor its agents or representatives provide tax or legal advice.