Which plan is best for your company?

Small business owners have a number of retirement plan options to choose from. At Saturna, we believe SEP-IRA, SIMPLE-IRA, and 401(k) Plans offer employers great "Value for Your Money" because of their low cost and easy operation.

The plans have a few major distinctions:

The SEP-IRA is funded by employer contributions only, and is the simplest plan to implement. The business contributes the same percentage of compensation for all eligible employees.

The SIMPLE-IRA is funded by employee elective salary deferrals and flexible employer contributions. Employees have an opportunity to defer part of their salary to fund their retirement plans on a tax-advantaged basis.

401(k) Plans offer similar tax advantages on employee salary deferrals, but also offer enhanced administrative options, higher employee contribution limits, vesting schedule for optional employer contributions, available Roth contributions, plus more.

Employer IRA vs. 401(k) Comparison

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SEP-IRA

SIMPLE-IRA

401(k)

Eligible Employers

Any self-employed individual, business owner, or individual who earns more than $600 self-employed income

Businesses with 100 or fewer eligible employees and who do not currently maintain any other retirement plan

Generally, any business may establish a 401(k)

Key Advantages

Easy to set up and maintain; flexible annual funding requirements

Salary deferral plan with less administration than a 401(k)

Salary deferral plan with higher contribution limits; profit sharing, Roth accounts, loans and deferred vesting available

Funding Responsibility

Employer contributions only

Funded by salary deferral and employer contributions

Funded by salary deferral and employer contributions, if elected under the plan; employer profit sharing

Contribution Flexibility

Contributions are discretionary

Employer contributions are mandatory

Employer matching contributions, if elected under the plan, are mandatory; profit-sharing contributions are discretionary

Maximum Annual Contribution Per Employee

Employer:
The lesser of $56,000 for 2019, and $57,000 for 2020, or 25% of annual compensation (25% of self-employed income)

Employee:
The lesser of $13,000 for 2019, and $13,500 for 2020, or 100% of compensation (plus catch-ups)

Employer:
Either match employee contributions dollar for dollar up to 3% of compensation (maximum $13,000 for the 2019 plan year, and $13,500 for the 2020 plan year); can be reduced to as low as 1% in any 2 out of 5 yrs
or
contribute 2% of each eligible employee's compensation, up to $6,000 for 2019 and 2020

Employee:
The lesser of $19,000 for 2019, and $19,500 for 2020 or 100% of compensation (plus catch-ups)

Employer:
May be set by plan

Overall maximum contribution (from all sources) is 100% of compensation, not to exceed $56,000 for 2019, and $57,000 for 2020 (plus catch-ups)

Catch-up Contributions

None

$3,000 for ages 50 and up

$6,000 for ages 50 and up

Roth Accounts

No

No

Yes

Vesting

Contributions are immediately 100% vested

Contributions are immediately 100% vested

Employee salary-deferrals are immediately 100% vested

Employer contributions may be subject to a vesting schedule

Loans

No

No

Yes

Age Restrictions

May exclude employees under age 21

None

May exclude employees under age 21

IRS Reporting By Employer

None

None

Form 5500

Establishment Deadlines

Employer's tax-filing deadline, including extensions

Oct. 1 of the year in which the plan is being established

The last day of the employer's plan year (usually calendar year)

Employer-paid Fees

None

None

Annual fee of $750, see fee schedule

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In determining which of these retirement plans is most appropriate for your business, you'll want to consider a few key questions, including:

  1. How much, if any, responsibility do you want the business to have for contributing to employee retirement plans?
  2. What percentage of compensation do you want employees to be able to contribute each year?
  3. Do you want to require the business to contribute to the plan on behalf of employees?
  4. Do you want employer contributions to be subject to a vesting schedule?

Download Brochures

Get more details in our informational brochures.