Small Business Retirement Programs
SEP IRA―A Simplified Employee Pension plan you can set up with ease
Simplified Employee Pension (“SEP”) plans can provide a source of income at retirement by allowing employers to set aside money in retirement accounts for their employees. SEP plans are easy for employers to setup and generally have limited annual maintenance responsibilities and lower plan administration costs compared to conventional employer retirement plans.
|Maximum Contribution % of Compensation||25%||25%|
|Maximum Compensation Cap||$275,000||$280,000|
|Maximum Employer Contribution||$55,000||$56,000|
For 2019, contributions made by a business for its eligible employees cannot exceed 25% of an employee’s compensation or $56,000, whichever is less. Employers generally cannot consider the part of an employee’s compensation over $280,000 in calculating the contribution limit for 2019. Employer contributions generally are deductible subject to applicable limits.
Easy Plan Setup
A SEP may be established as late as the tax filing deadline of the business (including extensions). In many instances, a business can easily establish a SEP plan by simply completing IRS Form 5305-SEP. Each eligible employee completes their own SEP IRA application and a contribution is made on their behalf. Employer contributions generally are deductible subject to applicable limits.
Easy Plan Funding
Each eligible employee participates by completing their own SEP IRA application, as owner, and selects their own fund allocation for future investment (by the sponsoring business) on their behalf.
Hartford Funds are available for new plan setups and transferred accounts. Online account management is now available for plan sponsors at www.mfplanadmin.com. This program can make it easier to submit contributions, adjust allocations, confirm transaction and review plan information.
SIMPLE IRA―A Savings Incentive Match Plan for Employee-owned accounts
A savings incentive match plan for employees (“SIMPLE IRA”) can provide you and your employees with a simplified way to make contributions to a plan to provide employees with retirement income. Generally, a SIMPLE IRA is limited to employers who have 100 or fewer employees and do not currently maintain another qualified retirement program. Under a SIMPLE IRA plan, employees can choose to make salary reduction contributions to the plan and employers may contribute matching or non-elective contributions. These plans generally have fewer maintenance responsibilities and lower plan administration costs compared to conventional employer retirement plans.
Employee Tax Savings
Eligible employees may make salary deferral contributions from the gross portion of their salary to reduce their taxable income while building retirement assets.
|Maximum Employee Contribution (Under Age 50)||$12,500||$13,000|
|Maximum Employee Contribution (Age 50 or Over)||$15,500||$16,000|
Employer Tax Savings
The business may deduct contributions made on behalf of the employees (including business owner). The business must select one of the following for the calendar year:
- A dollar for dollar match up to 3% of the participant's gross salary, or,
- A contribution of 2% of salary to all eligible employees up to applicable limits (generally $5,600 for 2019), or,
- A dollar for dollar match of at least 1% of salary*
* This option is only available in 2 of any 5 year period.
Each year the business owner decides whether the plan will continue to be sponsored for the following calendar year, and what type of match will be offered.
Easy Plan Setup
Up until October 1st of each year, a new SIMPLE IRA plan may be setup for that calendar year. Setup generally requires the completion of IRS Form 5304-SIMPLE or IRS Form 5305-SIMPLE and employee notification of limits, timing, and employer contribution. Each eligible employee completes their own SIMPLE plan application and salary deferral authorization for future salary reduction and investment on their behalf.
This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult a tax or legal counsel for advice.