RESOURCES

Which Retirement Plan is Best

Which Retirement Plan is Right For You?

  • Regular 401(k)
  • Safe Harbor 401(k)
  • Profit Sharing Plan
  • Profit Sharing Plan – New Comparability
  • Defined Benefit Pension Plan
  • Cash Balance Pension Plan
  • Simplified Employee Pension (SEP)

Want to make sure you pick the right retirement plan for you and your employees?

We put together a list outlining the benefits and limitations of each type of plan. Take a look!

For more information call Sheree Tallerman at 949-223-8397 or email sheree@planperferctretirement.com

Regular 401(k)

Benefits

  • Flexibility in Plan Design
  • Contributions deductible to the Employer
  • Employee 401(k) contributions reduce employee’s taxable income
  • Employee pre-tax deferrals up to 100% of compensation or $18,000*
  • Participants age 50 or older can defer an additional $6,000*
  • Discretionary employer profit sharing contributions
  • Employee contributions by payroll deductions
  • Possible employer match for employee contributions
  • Available options – loans, vesting, hardship withdrawals, rollovers
  • Protection from creditors
  • Participants may “self-direct” investments

Limitations

  • May prevent maximum deferrals for highly compensated and key employees
  • Anti-discrimination tests applies
  • Annual IRS Form 5500 Tax Return
  • Moderate administrative detail

Employee Participation – Maximum Requirements

  • Age 21 with one year of service – 1,000 hours

Safe Harbor 401(k)

Benefits

  • Deemed to pass discrimination testing and automatically meet top-heavy contribution requirements
  • Maximum deferrals for highly compensated and key employees
  • Employee deferrals up to 100% of compensation or $18,000*
  • Participants age 50 or older can defer an additional $6,000*
  • Discretionary employer contributions
  • Options available – loans, vesting, hardship withdrawals
  • Protection from creditors
  • Participants may “self-direct” investments

Limitations

  • Annual IRS Form 5500 Tax Return
  • Moderate administrative detail
  • Requires annual election and notice

Employee Participation – Maximum Requirements

  • Age 21 with one year of service – 1,000 hours

Profit Sharing Plan

Benefits

  • Contributions are discretionary and deductible to Employer
  • Flexibility in plan design
  • Plan expenses deductible to the employer
  • Individual contribution limit, lesser of 100% / $53,000*
  • May combine with a 401(k) plan
  • Other options – vesting, loans and rollovers
  • Protection from creditors
  • SEP-IRA may be rolled in
  • Participants may “self-direct” investments

Limitations

  • Annual IRS Form 5500 Tax Return
  • Moderate administrative detail
  • Salary deferral not allowable

Employee Participation – Maximum Requirements

  • Age 21 with one year of service, then vesting schedule can apply
  • Age 21 with two years of service, then 100% vested at entry

Profit Sharing Plan with New Comparability

Benefits
Same as Profit Sharing above, and:

  • Target individuals or groups to maximize contributions
  • Maximum employer deduction 25% of compensation
  • Individual contribution limit, lesser of 100% / $53,000*
  • May combine into a 401(k) plan
  • Other options – vesting, rollovers, loans
  • Protection from creditors
  • SEP-IRA may be rolled in
  • Participants may “self-direct” investments

Limitations

  • Annual IRS Form 5500 Tax Return
  • Significant administrative detail

Employee Participation – Maximum Requirements

  • Age 21 with one year of service, then vesting schedule can apply
  • Age 21 with two years of service, then 100% vested at entry

Defined Benefit Pension Plan

Benefits

  • Deductible contribution levels may be substantially higher than the plans listed above
  • Favors older, highly compensated employees
  • May credit service prior to plan inception
  • Vesting
  • Protection from creditors
  • Trustee’s responsible for investment selection

Limitations

  • Recurring annual contribution
  • Annual IRS Form 5500 Tax Return
  • Extensive administrative detail
  • Actuary advice required

Employee Participation – Maximum Requirements

  • Age 21 with one year of service, then vesting schedule can apply
  • Age 21 with two years of service, then 100% vested at entry

Cash Balance Pension Plan

Benefits

  • Maximize contributions and tax deductions
  • May credit service prior to plan inception
  • Favorable to older and long tenured employees
  • Protection from creditors

Limitations

  • Recurring annual contribution
  • Annual IRS Form 5500 Tax Return
  • Extensive administrative detail
  • Actuary advice required
  • Lump sum distribution upon retirement

Employee Participation – Maximum Requirements

  • Age 21 with one year of service, then vesting schedule can apply
  • Age 21 with two years of service, then 100% vested at entry

Simplified Employee Pension (SEP)

Benefits

  • Simple to establish and maintain
  • Contributions deductible to the employer
  • Maximum deductible contribution 25% of wages (or up to 20% of Schedule C income)/ up to a maximum of $53,000* Contributions can be made for 2012 up until your tax filing deadline, plus extensions
  • Flexible contribution amounts
  • No annual IRS Form 5500 Tax Return
  • Less administrative detail

Limitations

  • Vesting – full and immediate
  • No federal protection from creditors
  • Must include part-time employees
  • No Loans

Employee Participation – Maximum Requirements

  • Age 21
  • Employed three of past five years
  • Compensation at least $600*

*2015 figures. Subject to annual cost of living adjustments. For more information, click here.

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