| |
Money Purchase |
SEP IRA |
Profit Sharing |
| Eligible Employers |
Any business with one or more employees. |
Sole proprietorships, partnerships, corporations, and small businesses. |
Sole proprietorships, partnerships, limited liability companies, and corporations. |
| Can employer sponsor other qualified retirement plans? |
Yes. |
Yes. |
Yes. |
| Eligible Employees |
Employees who meet all these criteria:
| • |
At least 21 years of age. |
| • |
Worked at least 1,000 hours for the business in the prior year. |
|
Employees who meet all these criteria:
| • |
At least 21 years of age. |
| • |
Employed by the business in 3 of last 5 years. |
| • |
Earned at least $450 in current year. |
|
Employees who meet all these criteria:
| • |
At least 21 years of age. |
| • |
Worked at least 1,000 hours for the business in the prior year. |
|
| Funding Responsibility |
Employer contributions only. |
Employer contributions only. |
Employer contributions only. |
| Employer Annual Contributions |
Fixed employer contribution according to plan terms.
Up to 25% of compensation paid to all eligible employees, for a maximum of $41,000 per participant in plan year 2004. |
Up to 25% of compensation or a maximum of $41,000 in 2004. |
Optional employer contribution according to plan terms.
Up to 25% of compensation paid to all eligible employees, for a maximum of $41,000 per participant in plan year 2004. |
| Employee Annual Contributions |
No employee contributions. |
No employee contributions. |
No employee contributions. |
| When Withdrawals Can Be Taken |
The plan may permit loans.
Payment of benefits generally at retirement. |
Withdrawals at any time; subject to current federal income taxes and, if participant is younger than age 59½, possibly a 10% penalty. |
The plan may permit loans and hardship withdrawals. (Hardship withdrawals may be subject to a 10% penalty if the participant is under age 59½.)
Payment of benefits generally at retirement. |
| Can Rollover To: |
|
|
|
| Traditional IRA |
Yes. |
Yes. |
Yes. |
| SIMPLE IRA |
Yes.2 |
No. |
Yes.2 |
| Roth IRA |
No. |
Yes. |
No. |
| SEP IRA |
Yes. |
Yes. |
Yes. |
| SIMPLE 401(k) |
Yes.1 |
No. |
Yes.1 |
| Safe Harbor 401(k) |
Yes. |
Yes. |
Yes. |
| 403(b)1 |
Yes. |
Yes. |
Yes. |
| 457 Governmental |
Yes. |
Yes. |
Yes. |
| 401(k)1 |
Yes. |
Yes. |
Yes. |
| Vesting of Contributions |
Determined by plan terms. |
Immediate. |
Determined by plan terms. |
| Administration |
Form 5500 required. |
Discrimination testing required.
"Top-heavy" testing required. |
Discrimination testing required.
Subject to certain funding and other rules.
Form 5500 required. |
| Pros |
Employer contributions are deductible from taxable business profits.
Certain employees may be excluded. Example: Those who work less than 1,000 hours in a year.
Any growth of assets in account is tax-deferred.
Assets are protected from creditors and/or lawsuits. |
Employers can change contributions from year to year, to suit cash flow, and even skip a year.
Allows employers to provide a valuable retirement benefit without the complicated administration and high cost typically associated with employer-sponsored plans.
No employer tax filing required.
Any contributions made are deductible from taxable business profits.
All contributions and any growth are tax deferred.
No annual Form 5500 to file with IRS.
Employees may be excluded if they are non-resident aliens or covered by collective bargaining agreement. |
Flexible. Employers can change their contributions to suit cash flow. Contributions can vary from year to year, although they must be substantial and recurring over the years.
Certain employees may be excluded. Example: Those who work less than 1,000 hours in a year.
Features such as loans and vesting schedules, which are not available in a SEP IRA, may be included.
Assets are protected from creditors and/or lawsuits.
Often coupled with a 401(k) to allow pre-tax, salary-deferral contributions by employees. |
| Cons |
Similar to profit sharing plans but with no flexibility.
A business must contribute a fixed percentage of pay each year.
Contribution rate chosen when plan is established can be changed only by plan amendment.
No pre-tax employee deferrals are allowed. |
Less plan design flexibility than a profit sharing plan.
Employees can withdraw assets for any reason.
IRA plans not protected from personal creditors and/or lawsuits.
No pre-tax employee deferrals are allowed. |
No employee salary deferrals (except when coupled with a 401(k).) |
