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• Simplified
Employee Pension (SEP)
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Simple IRA
•
Profit Sharing
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Age-weighted/comparablility profit
sharing plans
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401(k) profit sharing
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Safe-harbor 401(k)
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Owner only/one-person 401(k)
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Defined benefit pension |
Owner Only/One-person 401(k)
A recent tax law permits the owner/partner/shareholders of a small
business, and their spouses, to maximize contributions if net compensation
is less than $176,000 (indexed for 2006).
Eligibility
Employee eligibility requirements are typically limited to attainment
of age 21.
Contributions
Contribution types and limits are the same as those for a 401(k) profit
sharing plan, including Roth 401(k) salary deferrals.
Advantages
Filing a Form 5500 is not required until either the total plan assets
exceed $100,000 or an employee other than an owner/partner/shareholder
or their spouse enters the plan. Additionally, discrimination testing
is not required until an employee other than an owner/partner/shareholder
or their spouse enters the plan.
Defined Benefit Pension Plans
A defined benefit pension plan is designed to provide a specific benefit
amount at retirement. This is the traditional pension plan in which
the employer bears the risk of providing the promised level of retirement
benefits to participants.
Eligibility
Employee eligibility requirements for a defined benefit plan are the
same as those for defined contribution plans.
Contributions
Unlike the defined contribution plans previously discussed, the defined
benefit plan limit is based on the benefit to be received at retirement,
not on the annual contribution. Each year the plan’s actuary
determines the required annual contribution based on several factors
such as age, salary level and years of service, as well as interest
rate assumptions. The maximum annual benefit for which a plan may
fund is the lesser of 100% of the participant’s compensation
up to $175,000 (indexed for 2006).
Advantages
For participants closer to retirement, contributions to a defined
benefit plan may exceed the 100% or $44,000 limit imposed by defined
contribution plans. This may be advantageous to a business owner who
is approaching retirement age, has never started a retirement plan
and wishes to put away as much money as quickly as possible. A defined
benefit plan can also be advantageous for an employer wanting to provide
a fixed benefit or to favor older employees.
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