| SITUATION | PLAN TYPE | BENEFITS & TRADEOFFS |
| Just starting, need to contribute less than $5500/Yr | Payroll deduction IRA | No cost to employer, No DOL/ERISA filing or testing. Dollar Cost averaging. Monthly savings easier to budget. Flexibility of contribution $0-$6500/yr. TRADEOFF: $5500-$6500/yr is the MAX allowed. Lose ability to do a Roth in tandem. |
| No Long Term Employees, want 5K – 10K contribution | SEP | Can put about 20% of income towards retirement. Each year can decide different contribution level. TRADEOFF: Must put in same % for employees as yourself after 3 yrs. Employees don’t contribute, thus feels like free money. |
| Just starting, need to contribute less than $5500/Yr, may need access | Payroll deduction ROTH | Can take out contributions without penalty 5 yrs after opening. Tax-fre at retirement. TRADEOFF: $5500-$6500/yr is the MAX allowed. No current tax deduction. |
| No full time employees, want liquidity access, higher contributions | Solo(k) | Can put $18-$24K away annually PLUS the same 20% as SEP. Can take loans. Works for all partnerships, family businesses. TRADEOFF: Can’t do if have any non-family employees > 1000 hrs. |
| Have less than ~15 employees, want simple paperwork, would rather pay the employees than fees. Want to put away about $15K+ per year. | SIMPLE IRA | 3% match cost to employer. No DOL/ERISA Filing. Can reduce match to 1% in hardship years. TRADEOFF: No loans allowed. 20% withdrawal penalty. |
| Have more than 15 employees, want predictable expenses | 401(k) | No employee match required. Can put away up to $54K/yr. Loans allowed. TRADEOFF: Fairness testing. Can be a liability. Admin costs at least ~$2500/yr in fees. |
| Young business owners with a long time to save | Roth 401(k) | No employee match required. Can put away up to $54K/yr. Loans allowed. TRADEOFF: Fairness testing. Can be a liability. Admin costs at least ~$2500/yr in fees. |
| Want to say you have a retirement plan but have no money to pay for it just yet. | Payroll Deduction IRA | (see above) |
| Want to put a LOT of $$ away | Defined Benefit Plan | Huge tax deduction. build retirement assets fast. TRADEOFF: Complex. High fees. Requires an actuary. |
| Want most of the contribution to go to you, the owner(s). Owners make a lot, employees don’t. | Profit Sharing Plan | Contribution formula based on paycheck so owners get 60-70% of contributions. Contributions can vary wildly year to year. TRADEOFF: Complex. High fees. Requires an actuary. Employees don’t contribute, thus feels like free money. |
Simple Example 2014: I own a business and make $50K
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply.
Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.