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Small business pensions
SIMPLE-IRA plans
Looking for the pension benefits of a 401(k) without
the administrative expenses? A SIMPLE-IRA plan is available specifically for
businesses of 100 or fewer employees only. Participation is required to be
offered to any employee who earned at least $5,000 in each of the previous
two years, and is expected to earn at least $5,000 in the current year. It
is possible to be more generous than this restriction, however, when
determining eligibility. For example, the employer could choose to exclude
those employees that have not earned at least $2,500 in the last two
years.
Both employer and employee dollars are accepted in the
SIMPLE. Amounts contributed fund an individual retirement annuity in the
employee’s name and are 100 percent vested with the employee.
Employer
contributions
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Contributions
to a SIMPLE-IRA are tax-deductible to the employer. The employer can
choose to make payments in one lump sum, or systematically throughout
the year.
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Contributions are mandatory each year, and are based on either a level or matching basis.
Employee
Contributions
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Employee
contributions, required to be remitted via payroll deduction, are voluntary.
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Amounts
contributed are not currently taxed.
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The
maximum employee contribution is $10,500.
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Employees
who attain ages 50 or older during the year are eligible for “catch
up” contributions of $2,500. This is in addition to the $10,500
employee contribution limit.
SEP-IRA Plans
Are you looking for a pension specially designed for
small businesses? A SEP-IRA plan is designed primarily for small
businesses, and
participation is extended to any employee who draws a minimum salary from
the business for services. While the plan must conform with
non-discrimination rules, certain employees can be eliminated at the
employer’s discretion, including:
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Employees
who have not worked for the company three out of the last five years,
earning at least $500/year.
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Employees
under the age of 21.
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Employees
covered under a collective bargaining agreement and non-resident
aliens, subject to certain restrictions.
You, as the employer, may also elect to be more
generous than these restrictions. For example, excluding those under 20
rather than 21. It is not possible, however, to be more restrictive when
determining eligibility.
Contributions
Only business dollars are accepted in the SEP; employee
contributions are not accepted. Amounts contributed on an employee’s
behalf fund an individual retirement annuity in the employee’s name and
are 100 percent vested with the employee. Business contributions are not
mandatory each year.
Employer
advantages
-
Contributions
to a SEP are tax-deductible to the employer.
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Contributions
are not mandatory each year, allowing flexibility in funding.
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Minimal
paperwork is required to put the plan in place.
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The
plan will provide a needed retirement fund benefit to the employees,
strengthening their ties to the business.
Employee
advantages
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Amounts
contributed are not currently taxed.
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Funds
accumulate tax-deferred and can provide substantial retirement
dollars.
Ask
an agent
Your
Harleysville Life agent can help you with establishing a SIMPLE-IRA or
SEP-IRA plan for your business. Use our Find
agent feature or contact Harleysville Life directly at 800.222.1981 to
find an agent in your area.
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