What Is an IRA Plan?
IRA plans are investment vehicles that allow self-employed individuals and employers a simplified means of maintaining and contributing to retirement accounts for employees. There are different types of IRA plans, which are subject to the same investment rules as traditional Individual Retirement Accounts.
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Types
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SIMPLE IRA Plans allow small businesses with up to 100 employees to offer easy-to-manage retirement plans for their employees. Simplified Employee Pension plans, often called SEP-IRAs, allow self-employed individuals to establish a retirement plan for themselves and eligible employees.
Contributions
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With SIMPLE IRA plans employers are required to establish an IRA for all employees who were paid at least $5,000 in the previous two years and are expected to earn at least that much during the calendar year. Employers are generally required to make a contribution equal to the employee's salary reduction contributions, up to 3 percent of the annual compensation. SEP-IRA plans require employers to maintain uniform contribution rates, up to 25 percent of annual earnings. The contributions with SEP-IRA plans can vary from 0o to 25 percent each year, with a maximum contribution of $49,000 for the 2009-2010 plan year.
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Employer Benefits
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Employer contributions are tax deductible for both SIMPLE and SEP IRA plans. They are easier to set up and manage than traditional 401(k) plans
Employee Benefits
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Both the SIMPLE and SEP IRA plans are funded with pre-tax dollars and earn money tax-deferred until withdrawal. Employer sponsored retirement funds provide employees with retirement savings. Employees independently own their IRAs. Participants in SIMPLE IRA plans are 100 percent vested in the plan immediately.
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References
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