Employer Provided IRA Plans

As I stated in my previous post employers should consider offering a retirement plan to their employees.  In this post I'm going to provide an overview of the following IRA plans:

• Simplified Employee Pension (SEP-IRA)


• Savings Incentive match Plan for Employee (SIMPLE-IRA)


• Payroll Deduction IRA (Traditional IRA)

	SEP	SIMPLE	Payroll Deduction IRA
Eligible Employer	Any employer	·       100 or fewer employees with $5,000 or more in compensation ·       No other qualified retirement plan is maintained	Any employer
Employee Eligibility	·       At least 21 years old ·       Employee for at least 3 of the last 5 years ·       Has received at least $550 in compensation in 2009	Any employee who received at least $5,000 in compensation during any two years preceding the current year and is expected to receive at least $5,000 in the current year	All employees
How to Set Up	1.     Prepare IRS Form 5305-SEP 2.     Provide each eligible employee with information about the plan 3.     Establish a SEP-IRA for each eligible employee	1.     Prepare IRS Form 5305-S 2.     Prepare IRS Form 5305-SA 3.     Establish a SIMPLE IRA for each eligible employee	The employer arranges for the payroll deductions and transmits the employee’s contributions to their IRA.
When to Set Up	Anytime up to the due date of the employer’s return including extensions	Effective on any date from January 1 through October 1 of a year for which contributions will be made	Employee decides
Contributions	·       Employers must contribute a uniform percentage of pay for each employee ·       Employers do not have to contribute each year ·       Contributions must be based on a written allocation formula that does not discriminate in favor of highly compensated employees	Employer is generally required to match each employee’s elective deferrals on a dollar-for-dollar basis up to 3% of the employee’s compensation	Employee decides whether to contribute and when to contribute
How much to Contribute	For 2009, contributions cannot exceed the lesser or 25% of the employee’s compensation for $49,000	·       Employee may defer up to $11,500 in 2009 and 2010 ·       Employers generally match the employee deferral up to 3% of the employee’s compensation	Employee decides

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.