There are over a half-dozen common types of retirement plan options available – not to mention the more esoteric ones. Here is a quick primer on the most common ones and which will be best for your particular situation:
IRA plans – Individual retirement plans (IRAs) are the easiest retirement plan for a company to establish, as the employee is the only one contributing. In essence, it is a tax-deferral strategy. Your money grows tax-free today but you will have to pay tax when you finally distribute the proceeds.
401(k) plans – Easily the most popular type of retirement plan around today, a 401(k) retirement plan allows employees to make pre-tax contributions to their retirement account that are usually matched to some degree by the employer. The retirement account also grows tax-free until distribution of the assets at retirement.
4003(b) plans – Similar to a 401 (k) this type of plan is only suitable for certain eligible employees of tax-exempt organizations, public schools, and certain religious organizations. Again, the employee can contribute a specific percentage of their salary to the plan and have it matched by the employer.
Profit sharing plans – Profit sharing plans are beneficial to both the employee and the employer as benefits accrue depending on how well the company performs during the previous year. In addition, employers are free to adjust the terms while employees can take the fruits of their labors with them if they decide to leave the company.
SIMPLE plans – Designed for small businesses – a company must have 100 employees of less – a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is a comparatively easy way for small businesses to set up an affordable retirement plan.
SEP plans – Simplified employee plans (SEP) are another easy – read that, paperwork-free – way to establish retirement accounts for employees. In short, employers make contributions on a tax-favored basis to individual retirement accounts (IRAs) that are owned by the employees
Without a doubt, retirement plan options can be quite confusing to the uninitiated or inexperienced. For more detailed information on them, please contact the experts at Lewis & Palmer Benefits. We can be found online at LPBenefits.com or reached directly at 954-308-7204.