Do any of these situations sound familiar?

  • Many employees don't understand or appreciate how best to plan for retirement
  • HR is too busy with the other 60,000 tasks to explain investments
  • Company objectives have changed and can now start to look at installing a retirement plan
  • $25 Can Make a Big Difference
  • Cutting out eating lunch one time each week & put that $25 into your 401K instead.
  • In 20 years, you'll have saved more than $60,000!

Retirement numbers that make sense.

Simple IRA vs. 401(k) vs. Safe Harbor 401(k)

2017 Analysis Detail

Design feature Simple IRA 401(k) Safe Harbor 401(k)
Eligibility for plan Employers with 100 or fewer employees Any business can establish Any business can establish
Eligibility for participation Employees earning over $5,000 or more in two prior years and no other plan

Age 21

Completion of one year of service

1,000 hours service per year

Age 21

Completion of one year of service

1,000 hours service per year

IRS Form 5500 required No Yes Yes

Contribution

Limits – Employer

Employer must make matching contributions up to 3% of employee compensation or contribution 2% of total eligible compensation

Employer has discretion on what to contribute up to 25% of eligible compensation

Employer contributions not required

Employer must make dollar-for-dollar matching contributions up to 3% of employee compensation and $.50 on the dollar for the next 2% of employee compensation or contribute 3% of total eligible employee compensation. Additional discretionary profit-sharing contributions are allowed. Employer contributions may not exceed 25% eligible compensation
Required Minimum ER Contribution
Matching option Dollar for dollar match up to 3% None 4% of employee compensation

Non-Elective Contribution

2% of employees total eligible compensation*

None

3% of employees total eligible compensation

Profit-Sharing available No Yes, if plan allows Yes, if plan allows
Contribution format Can be made as a matching contribution or profit-sharing contribution Can be made as a matching contribution and/or profit-sharing contribution Can be made as a matching contribution and/or profit-sharing contribution

$ Limits – Employee

$12,500 per year for employee if under age 50

$15,500 per year for employee if over age 50

$18,000 annually if under age 50, subject to testing

$24,000 per year if over age 50, subject to testing

$18,000 annually if under age 50

$24,000 per year if over age 50

Deadline for Employer contribution Employer tax filing deadline, plus extensions Employer tax filing deadline, plus extensions Employer tax filing deadline, plus extensions
Retirement assets comingled Not allowed Plan level decision, but most plans allow for IRA, SIMPLE IRA, 403(b), 457(b) or other 401(k) balances to be comingled Plan level decision, but most plans allow for IRA, SIMPLE IRA, 403(b), 457(b) or other 401(k) balances to be comingled
Vesting 100% immediate in employer contributions Plan may offer a vesting schedule with several options being available 100% immediate on Safe Harbor contributions, with vesting schedule available on employer contributions above Safe Harbor
Loans** Not available Yes, if plan allows for loans Yes, if plan allows for loans
Pre-tax or Roth (after tax) Pre-tax only Pre-tax or Roth if document allows Pre-tax or Roth if document allows
Distributions***

10% premature distribution

10% increased to 25% during first two years

In-service distributions allowed

Must begin distributions by age 70 ½

Available at any time for any reason

10% premature distribution

In-service distributions available if plan allows

Must begin distributions by age 70 ½ unless still employed, unless over 5% owner

Available for hardships

10% premature distribution

In-service distributions available if plan allows

Must begin distributions by age 70 ½ unless still employed, unless over 5% owner

Available for hardships

* Up to the annual limit of $270,000 for 2017, subject to cost-of-living adjustments in later years. If you choose to make non-elective contributions, you must make them for all eligible employees.
** Loan Limits: Maximum of 50% of vested balance up to $50,000. Payments must be made at least quarterly with level amortization.
*** You are able to make contributions after age 70 ½ to a SIMPLE IRA, but you must also takeyour Required Minimum Distributions.

Items to Consider

  • How important are highest limits for employer and employee contributions?
  • How important is having a vesting schedule?
  • How important is Custom plan design?
  • What is likely participation by non-highly paid employees?
  • Are loans an important plan feature?
  • Are paying some or higher administrative costs a challenge?
  • How important is flexibility with respect to match?
  • How important is attracting and retaining key employees?
  • A SIMPLE IRA and 401(k) cannot exist in the same calendar year
  • When moving from a SIMPLE IRA to a 401(k) there are notice requirements

Why SIMPLE IRA?

  • Designed for very small companies that want a plan
  • If employer against paying for Recordkeeping/TPA fees
  • Employee only willing to pay some employer contribution
  • Slightly lower employer cost than Safe Harbor 401(k) design
  • No constraints on taking accumulated funds, subject to tax and penalties

Why not SIMPLE IRA?

  • Everyone 100% vested in employer contribution
  • No other plans
  • Only calendar year design
  • 25% penalty if distributions in first two years of contract
  • Roth contributions not available
  • Generally one investment family
  • Generally retail mutual fund pricing
  • Everyone has individual contracts/investments

Why 401(k)?

  • Employer contribution not mandatory, flexibility year to year
  • Flexibility with Custom Plan design
  • Flexibility with Vesting provisions
  • Investments looked at as a group for whole plan
  • Plans allow for Loans and Hardships
  • Allows for other qualified assets to be merged into plan
  • Plan level pricing
  • Protection from Creditors
  • Addition of Profit-Sharing component available
  • Qualifies for Tax credit of $500/year for 3 years under tax law
  • Flexibility with eligibility
  • Roth after tax contributions available
  • Can maintain other plans

Why Not 401(k)?

  • Have to perform ADP/ACP test to determine max employee and employer contributions along with Top Heavy test
  • Can be Calendar year or Fiscal year
  • More administrative expense and responsibilities than SIMPLE IRA
  • Generally higher administrative expense than Safe Harbor 401(k)
  • More administrative responsibilities

Why Safe Harbor 401(k)?

  • Maximum Contribution for Highly Compensated Employees
  • Maximum Catch-up provision for participants over age 50
  • Allows for Eligibility Flexibility and with Plan Design
  • Plans allow for Loans and Hardships
  • Allows for other qualified assets to be merged into plan
  • Plan level pricing
  • Protection from Creditors
  • Addition of Profit-Sharing component available
  • Qualifies for Tax credit of $500/year for 3 years under tax law
  • No ADP/ACP/Top Heavy test required with Safe harbor design
  • Vesting schedule allowed for Profit-Sharing component
  • Roth after tax contributions available
  • Can maintain other plans
  • Generally less administrative expense and responsibility than regular 401(k)

Why not Safe Harbor 401(k)?

  • Everyone 100% vested in employer Safe Harbor contribution
  • Can be Calendar year or Fiscal year
  • More administrative expense and responsibilities than SIMPLE IRA
  • Slightly higher cost if Safe Harbor match or non-matching employer cost selected
  • Potentially more expensive than regular 401(k) for employer

Retirement plans are designed to accumulate money on a tax-deferred basis for retirement purposes. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, a 10% federal tax penalty may apply. Investing in a group variable annuity involves risk, including possible loss of principal.

Prior to selecting investment options for a plan, plan sponsors should consider the investment objectives, risks, fees and expenses of each option carefully. For this and other important information, plan sponsors should review the fee disclosure document or the plan sponsor website. Read this information carefully.

Although this chart is designed to provide accurate and authoritative information with respect to the subject matter being covered, it is expressly understood by the reader that the publisher is not engaged in rendering legal and/or accounting services or advice. If legal and/or accounting advice. If legal and/or accounting advice is required, the services of a competent attorney or accountant should be sought.

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