IRA Financial’s Adam Bergman Esq. discusses two popular retirement options for small businesses with full-time employees, the SEP and SIMPLE IRAs, and the benefits of each plan.
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About IRA Financial:

IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

IRA Financial Group is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial Group, its management, salespersons or IFG’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

IFG is not engaged in rendering legal, accounting or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association & a Committee of Publishers and Associations.). The scope of Professional Services does not include the costs of any custodian related services.

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As an entrepreneur or business owner, offering a retirement plan for your employees is not just a legal obligation, but it’s also a great way to attract and retain good employees. However, with so many options available – from SEP IRA to SIMPLE IRA – it can be difficult to determine which plan is the best fit for your business. In this article, we’ll explain the difference between SEP IRA and SIMPLE IRA to help you make an informed decision.

SEP IRA

SEP IRA stands for Simplified Employee Pension Individual Retirement Arrangement. This type of plan is easy to set up and maintain, making it a popular choice for self-employed individuals and small businesses. With a SEP IRA, the employer makes contributions to each employee’s retirement account based on a percentage of their salary. In 2021, an employer can contribute up to 25% of each employee’s compensation or $58,000 (whichever is less) to their SEP IRA account.

The key benefits of a SEP IRA are:

• Contributions are tax deductible for the employer

• All employees are eligible to participate, including part-time and seasonal employees

• Contributions are made by the employer, so there’s no need for employees to make their own contributions

• There are no annual filing requirements, so the administrative hassle is less

• SEP IRAs are easy to set up and maintain

However, there are some potential downsides to consider:

• The employer is solely responsible for making contributions

• Once contributions are made, they cannot be withdrawn until retirement

• The employer must contribute the same percentage of compensation to all employees

SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. As the name suggests, this type of plan is designed to encourage employees to save for retirement. With a SIMPLE IRA, both the employer and the employee make contributions to the account. The employer is required to contribute either a flat 2% of each employee’s compensation or match employee contributions up to 3% of their compensation. In addition, employees can make their own contributions up to $13,500 in 2021, with a catch-up contribution of $3,000 for those over 50 years of age.

The key benefits of a SIMPLE IRA are:

• Both employer and employee can make contributions to the account

• Employees have the option to contribute their own funds, which can help them feel invested in their retirement

• Employers receive a tax deduction for their contributions

• Employees can take loans from their SIMPLE IRA accounts in special circumstances

However, there are some potential downsides to consider:

• The employer is required to contribute each year, which can be a problem if the business experiences financial difficulties

• The contribution limits are lower than with a SEP IRA

• SIMPLE IRAs can be more complicated to set up and maintain, with annual filing requirements

Which is Right for Your Business?

The decision to offer a SEP IRA or SIMPLE IRA will depend on a number of factors, including the size of your business, your budget, and the needs of your employees. In general, SEP IRAs are best for small businesses with only a few employees or for self-employed individuals. SIMPLE IRA is a good option for small to medium-sized businesses that want to encourage their employees to save for retirement.

Regardless of which type of plan you choose, offering a retirement plan is an excellent benefit to provide for your employees that can help grow your business and foster loyalty. Be sure to consult with a financial advisor or tax professional to determine which plan is right for your business.