A host of retirement plans are around for small business owners as well as for the employees. For whom is the Simple 401K retirement plan appropriate?|
When it comes to choosing retirement benefit plans, there are a host of them like IRA, SEP-IRA, and simple IRA and so on. However, when none of them suits your requirement the ultimate choice could a simple 401k retirement plan.
Point of Difference:
There are some major differences between the two types of plans; Simple IRA and Simple 401 K.
- More paper works are required in case of 401 plans.
- You need to file the form 5500 every year in time.
- To be eligible your organization should not have more than 100 employees.
Why Prefer Simple 401K Plan?
While most of these plans are portable pension plans, certain reasons make the 401K plan more preferable in case of small business owners and beneficiaries.
- Larger contributions are permissible under the plan.
- For the year 2013 the maximum limit is $12,000.
- For participants in the age group of 50 or above there can be additional catch up of $2,500 maximum.
- Matching contribution by the employer is limited to maximum of 3% of the annual compensation for the employee.
- Conversely, they can opt for non-elective contributions to the extent of 2% in case of those getting $5,000 or more as compensation annually.
Portable Retirement Pension Plan:
In fact, the 401 plans also come under the category of portable pension retirement plan. It is obligatory for the employer to notify each of the employees before the commencement of the election period that they can affect a reduction in salary under the said plan. It is also obligatory for the employer to notify the employees whether he or she intends to make matching contribution of 3% of their annual compensation or non elective 2% contribution.
Other Obligations of Employer:
Other obligations that the employer is supposed to carry out under the 401 K plans are as follows.
- Provide employees with a summary description of the plans that are offered by the financial institutions.
- Inform about the portability of the plan that the employees may, if they so like, transfer their balance without any cost or penalty provided they use the services of some designated financial organization.
A word of Caution:
It should be borne in mind by all employers as well as employees that failure to conform with the rules and regulations put in place could lead to hefty penalties imposed on them. As Brett Goldstein, Director for retirement planning puts it “of all the different types of retirement plans 401 (k) is most non-compliant. Small businesses tend to have many 401 (K) compliance issues”.
A small mistake can cost an employer thousands of dollars in penalties that may not be conducive for the financial health of small business. However, if they can comply with the requirements, it constitutes one of the best and most portable among all the retirement plans around.
Planning of the investments in portable pension retirement plan is mostly the important aspect. For more information visit: simple 401k retirement plan Or portable pension plan
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