Retirement Plans/ 401K

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Overview
Use retirement benefits to get and retain employees

Retirement plans for small business can resemble an alphabet soup. Simple IRAs, SEP-IRAs, SAR-SEP IRAs, and 401(k)s are all possible configurations for your employee benefits package. At the end of 1999, deposits in retirement vehicles totaled $12.7 trillion in the U.S., according to the Investment Company Institute (ICI). Employer-sponsored pension plans made up $10.2 trillion of that figure, while individual retirement accounts totaled $2.5 trillion.

For small businesses with 100 or less employees, the most popular forms of retirement plans are SEP and SAR-SEP IRAs, which totaled $70 billion in 1999. Simple IRAs are catching on though since they were introduced in 1997. Their use tripled among companies with 100 employees or less from $2 billion in 1998 to $6 billion in 1999. In 1999, 87% of all Simple IRAs were set up by small businesses with fewer than 100 employees.

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SEP-IRAs
More on SEP IRAs
A simplified employee pension (SEP) is a written plan that allows you to make contributions toward your own (if you are self-employed) and your employees' retirement without getting involved in the more complex qualified plan. Employee contributions are not allowed in this type of plan. Also, some advantages available to qualified plans, such as the special tax treatment that may apply to qualified plan lump-sum distributions, do not apply to SEPs.

Under a SEP, you make the contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. SEP-IRAs are owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. A SAR-SEP IRA is a SEP IRA with a salary reduction plan included. These are no longer permitted for newly established plans. Simple IRAs is the alternative to consider for an employer-sponsored IRA with an option for employee contributions. Read more about SEP-IRAs.

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Simple IRAs
More on simple IRAs
A Savings Incentive Match Plan for Employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions for future retirement income. Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. In addition, you will contribute matching or non-elective contributions. Read more about simple IRAs.

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401(k)s
Top 10 questions

401(k) fees

Compare 401(k) providers
401(k) plans are among the most popular of employee benefits. 401(k) plans allow employees to save more and do so on a tax favorable basis. Often the employer matches contributions, helping the employee to save; matching also tends to increase employee retention and morale.

401(k) plans are not private savings accounts. They do have limitations on how much can be invested and where the money can be invested. Also, the money can only be withdrawn without penalties under certain circumstances.