Traditional 401(k)
401(K)’s are defined-contribution retirement plans Eligible employees make elective deferrals through payroll deductions. The elective deferrals may be pre-tax or after-tax (Roth) contributions. An employer may choose to make matching contributions too. Employers must also perform annual tests to ensure they are meeting minimum guidelines and meet specific non-discrimination requirements. This ensures that contributions do not favor employee over another.
Safe Harbor
Safe Harbor 401(k)’s similar to traditional plans however, sometimes an employer has difficulty meeting the non-discrimination requirements. Safe harbor 401(k) plans feature simple, alternative methods for meeting those requirements and are not subject to the annual nondiscrimination tests. This type of plan gives the employer a safe harbor from compliance concerns by providing them with a simplified product.
Simple 401(k)
The Simple 401(k) plans allow small businesses to have an effective, cost-efficient way to offer retirement benefits to their employees. Like the Safe Harbor this plan is not subject to the annual nondiscrimination tests. This type of 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year. Employees who are eligible to participate in a SIMPLE 401(k) plan may not receive any contributions or benefit accruals under any other plans of the employer.
Simple IRA
Unlike 401(k) plans this type of defined contribution retirement plan does not have the start-up and operating costs. They do relate similarly to the Simple 401(k) as they are available only to employers with 100 employees or less that earned $5,000 or more in a calendar year. Employers are required to make a matching contribution to employee accounts and are not allowed to offer any other options for retirement benefits for employees if they participate in a Simple IRA plan. With this plan the employer is exempt the non-discrimination testing requirements.
Payroll Deduction IRA
Payroll deduction IRAs are a great way for very small businesses to offer a retirement plan to employees. These plans offer zero cost to employers and required annual filings. Employees establish the account and are able to contribute up to the maximum individual IRA amount for that year. They have the contribution deducted directly out of their paychecks. The contributions may be either pre-tax or post-tax (Roth) and are typically set up directly with the fund company through an advisor.
SEP-IRA
These plans are available to any size business. Unlike other retirement plans, employers are not required to file with a SEP plan. Employee's are 100% vested. This plan is easy to set up and monitor. Flexible annual contributions. SEP plans require an equal contribution amount for all eligible employees. SEP plans are significant for employers who want to set aside money for retirement for themselves and their employees.