401k Recovery Advice

Plans The Small-Business Owner Can Establish

Investopedia |

In Brief...

Corporate downsizing can force many one-time corporate employees to seek out alternate employers: If you are hesitant about establishing a retirement plan for your business, consider this: And if your business income fluctuates or is newly established, you may want to set up a profit sharing plan or SEP IRA where contributions are discretionary, and therefore need not be funded during your more financially challenging years. Plans such as SEP IRAs and profit-sharing plans are funded only with employer contributions, while SIMPLE IRAs and 401(k) plans are generally funded with employer contributions as well as employees' salary-deferral contributions. IRA-Based Plans Because they are easy to explain to employees and require minimum administration, IRA-based plans are the most popular among newly established employers. SEP IRA The Simplified Employee Pension (SEP) is an IRA-based employer plan. If you are unable to determine your profit margin from year to year, you may find the SEP attractive since contributions are discretionary. Similar to SEP-IRA contributions, contributions to the SIMPLE IRA, including those you make, are immediately 100% vested. Qualified plans, such as profit-sharing and 401(k) are more complex than IRA-based plans and may require the assistance of a professional plan administrator. Employer contributions may be subjected to a vesting schedule. Employers may contribute on behalf of each eligible employee up to 25% of their compensation or $49,000, whichever is less. Distributions may be made at any time, but may be subject to federal tax and early-distribution penalty if the employee is under age 59.5 when distribution occurs. Distributions may be made at any time, but may be subjected to federal tax and early-distribution penalty if the employee is under age 59.5 when distribution occurs. Distributions may be subjected to federal tax and early-distribution penalty if the employee is under age 59.5 when distribution occurs. Distributions may be subjected to federal tax and early-distribution penalty if the employee is under age 59.5 when distribution occurs.

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