IRA, SEP, SIMPLE, and 401(k) Plans

Whether retirement days are near or far, you should be up-to-date on the types of retirement plans available to you and your employees. The plans you will hear most about are IRA, SEP, SIMPLE, and 401(k). In addition to providing for your retirement, they may offer significant tax benefits today.

Individual Retirement Arrangement

IRAs are plans that let you set aside money for your retirement. Banks, financial institutions, mutual funds, and stockbrokers are among those who offer IRA accounts.

Traditional IRA

To contribute to a traditional IRA, you must be under age 701/2 at the end of the tax year and have taxable compensation greater than or equal to your contribution during the year. Contributions may be tax deductible in full or in part, depending on your circumstances. The amounts earned by your IRA contributions are usually not taxed until you withdraw the money. Generally, you can’t withdraw money from your IRA before you turn age 591/2 without paying income taxes and a 10 percent additional tax.

Roth IRA

Regardless of your age, you may be able to set up a Roth IRA. You can’t deduct your contributions, but if certain requirements are met, earnings will be tax-free.

SEP Plan

The Simplified Employee Pension (SEP) was specifically designed for small employers and has very few administrative burdens or costs. Employer contributions are made directly to IRAs that the employer sets up for the employees. For additional information, see Publication 4333, SEP Retirement Plans for Small Businesses.

SIMPLE Plan

Generally, employers can set up a Savings Incentive Match Plan For Employees if they have 100 or fewer employees and meet several other requirements. A SIMPLE plan is an arrangement under which an employer makes contributions to employees’ SIMPLE retirement accounts. Additionally, employees can make salary reduction contributions. The two types of SIMPLE plans are the SIMPLE IRA and SIMPLE 401(k) plans. For additional information, see Publication 4334, SIMPLE IRA Plans for Small Businesses (PDF).

401(k) Plan

401(k) plans are the most popular type of retirement plan used today. They can be a powerful tool in promoting financial security in retirement for employees and are a valuable option for businesses considering a retirement plan. Employees may defer a portion of their salary as either a pre-tax or after-tax contribution. As with IRAs, there are different kinds of 401(k) plans. Depending on the type, the employer can make either non-elective or matching employer contributions. For additional information, see Publication 4222, 401(k) Plans for Small Businesses (PDF).

For assistance in determining what type of plan might be best for you and your small business, see Publication 3998, Choosing a Retirement Plan for Your Small Business.

Retirement Plan Fix-It Guides

We have added our SEP, SIMPLE IRA Plan and 401(k) Fix-It Guides to our IRS.gov Web site. Tips on how to find, fix, and avoid common mistakes for these plans are a sure-fire way to keep your plans healthy.

Think "Check-up" Now

Help your retirement plan thrive by taking a "Check-Up" featuring a checklist of some of the basic requirements for operating your plan. Just go to the Tax Information for Retirement Plans Community page.

See Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs), and Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

For additional information on employer sponsored pension plans, call Employee Plans Customer Account Services at 877-829-5500.