401(k) Retirement Plan
With a 401(k) plan, employees can choose to defer some of their
salary. So instead of receiving that amount in their paycheck, the
employee defers, or delays, getting that money. In this case, their
deferred money is going into a 401(k) plan sponsored by their
employer (that would be you). This deferred money generally does
not get taxed by the federal government or by most state governments
until it is distributed.
If you establish a 401(k) plan, you:
- Can have other retirement plans.
- Can be a business of any size.
- Need to annually file a Form 5500.
You can make a 401(k) plan as simple or as complex as you want to. A pre-approved 401(k) plan might be just the thing here if you want to cut down on administrative headaches and expenses.
403(b) Retirement Plan
A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan
offered by public schools and certain tax-exempt organizations. An
individual’s 403(b) annuity can be obtained only under an employer’s
TSA plan. Generally, these annuities are funded by elective
deferrals made under salary reduction agreements and nonelective
employer contributions.
Basically, 403(b) plans are similar to 401(k) plans. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary. In this case, their deferred money goes to a 403(b) plan sponsored by the employer. This deferred money generally does not get taxed by the federal government or by most state governments until distributed.
457(b) Deferred Compensation
Plans
Plans of deferred compensation described in IRC section
457 are available for certain state and local governments and
non-governmental entities tax exempt under IRC 501. They can be
either eligible plans under IRC 457(b) or ineligible plans under IRC
457(f). Plans eligible under 457(b) allow employees of sponsoring
organizations to defer income taxation on retirement savings into
future years. Ineligible plans may trigger different tax treatment
under IRC 457(f).
Roth Accounts in 401(k) or
403(b) Plans
Beginning in 2006, a 401(k) or 403(b) plan (but not a
SARSEP or SIMPLE IRA plan) may permit an employee to irrevocably
designate some or all of his or her elective contributions under the
plan as designated Roth contributions. The plan must contain
language that allows for these Roth contributions.
Designated Roth contributions are elective contributions that, unlike pre-tax elective contributions, are currently includible in gross income. If a 401(k) plan is going to provide for designated Roth contributions, it must also offer pre-tax elective contributions.
A designated Roth account is a separate account under a 401(k) or 403(b) plan to which designated Roth contributions are made, and for which separate accounting of contributions, gains, and losses is maintained.
IRA Payroll Deduction
The Payroll Deduction IRA is probably the simplest
retirement arrangement that a business can do. In fact, no plan
document need be adopted under this arrangement.
- The employer has no filing requirements.
- Only employees make the contributions.
- Any size business can provide this.
Under a Payroll Deduction IRA, an employee establishes an IRA (either a Traditional IRA or a Roth IRA) with a financial institution. The employee then authorizes a payroll deduction for the IRA.
Your responsibility as an employer is simply to transmit the employee’s authorized deduction to the financial institution. In general, if you offer this arrangement to any employee then you should offer it to all employees.
The Payroll Deduction IRA is essentially a “no fuss, no muss” situation
SEP
A SEP is a Simplified Employee
Pension plan. Because this is a simplified plan,
the administrative costs should be lower than for other, more
complex plans. Under a SEP, employers make contributions to
traditional Individual Retirement Arrangements (IRAs) set up for
employees (including self –employed individuals), subject to certain
limits.
To establish a SEP, you:
-
Can be a business of any size, even self-employed.
-
Must adopt a SEP plan document.
-
Generally cannot have any other retirement plan.
