Types of Plans
There are multiple options for your retirement plan design, and choosing the right type of plan is crucial. We partner with you to help you pick the best choice for your unique business needs. Below is a short overview of our most popular offerings.
- Traditional 401(k) Plan: This defined contribution plan type is one of the most popular options. Most 401(k) plans allow employees to contribute some of their compensation as deferrals into the plan, where their investment can earn additional money over time due to market fluctuations. We can design your plan to also offer employers the chance to contribute money for their employees as well. This can take the form of a discretionary match, a safe harbor match, a safe harbor non-elective contribution, or profit sharing. If you wish to not be subject to discrimination testing, you can select a safe harbor plan type. You are required to give employees either 3% of their compensation, whether or not they defer, or a 100% match on the first 3%, and 50% match on the next 2% of their compensation if they defer. These contributions are immediately 100% vested, but they give the owners and other highly compensated employees the opportunity to defer up to the IRS limit every year.
- 457 Plan: This is a plan type available for to tax-exempt organizations under IRC 501(c), state employees, and local government employees.
- Pension Plan: This defined benefit plan type requires the employer to make contributions to eligible employees in a pooled account. This plan type can also have the opportunity for employees to defer their own money into the plan. The employer guarantees a certain specific payment amount on a monthly basis for retired employees.
- 403(b) Plan: This is a plan type for businesses that are tax-exempt, such as religious groups and public school employees.
Retirement Plan Detailed Comparison Chart
| SEP | Simple IRA | 401(k) | Safe Harbor 401(k) | |
|---|---|---|---|---|
| Company Size Limit | Any size group | 100 or fewer employees including union | Any size group | Any size group |
| Eligibility Requirements | Earn over $600 (2020) per year in 3 of the last 5 years, age 21, may include union | Earns $5,000 in any prior 2 years and is expected to earn $5,000 in current year. No 1,000 hour requirement. No age requirement. May exclude union. | Age requirements cannot exceed 21. Service requirements cannot exceed 1 year of service, 1,000 hours/1 year | Age requirements cannot exceed 21. Service requirements cannot exceed 1 year of service, 1,000 hours/1 year |
| Required Employer Contribution | Optional, complete flexibility | Mandatory. Employer must match 100% up to 3% of the employee’s compensation or make a non-elective contribution of 2% of pay for each eligible employee. (Elect at least 60 days prior to beginning of calendar year). Under the matching formula, the employer is permitted with proper notice to reduce the match to as low as 1% in 2 of every 5 years. | Optional. Complete flexibility in Match & Voluntary Contribution as long as tests are met. | Choice of a 3% profit sharing or a match consisting of 100% match on the first 3% of deferrals and 50% match on the next 2%. Both must be 100% vested with no last day or 1,000 hour requirement. |
| Maximum Employee Deferral | N/A | $13,500 (2020) plus $3,000 catch up (age 50) | $19,500 (2020) plus $6,500 catch up (age 50) | $19,500 (2020) plus $6,500 catch up (age 50) |
| Maximum Match | None permitted | $13,500 (2020) | N/A | N/A |
| Compensation Limits | $285,000 (2020) | No limit for deferrals or match, $285,000 (2020) for 2% non-elective contribution | $285,000 (2020) | $285,000 (2020) |
| % (of Compensation) Limit for Deferral | N/A | 100% | 100% | 100% |
| Section 415 | $57,000 (2020) | $57,000 (2020) $63,500 with catch-up | $57,000 (2020) $63,500 with catch-up | $57,000 (2020) $63,500 with catch-up |
| Discrimination & Top Heavy Testing Required | Top heavy- Yes | None | Yes | Deemed to pass 401(k) test & top heavy requirement |
| Vesting – Profit Sharing | None permitted | None permitted | 5 year cliff/6 year graded | Same as 401(k) except the safe-harbor contribution must be 100% immediate |
| Vesting – Match | None permitted | None permitted | 3 year cliff/6 year graded | Same as 401(k) except the safe-harbor contribution must be 100% immediate |
| IRS Filing | None | None | 5500 filing | 5500 filing |
| Establishment Date | Tax filing date | Between January 1 and October 1 | Last day of Plan Year | Between January 1 and October 1 |
| Calendar Plan Year | Probably Not Required | Required | Not Required | Not Required |
| Available to Tax Exempt Entities | Yes | Yes | Yes | Yes |
| Available to Government Entities | Yes | No | Yes | Yes |
| Hardship Withdrawals | Not available | Not available | Available | Available |
| Maximum Deduction Limit | Discretionary—cannot exceed lesser of 25% of employee’s compensation or $57,000 | 25% of total compensation plus deferrals. Individual participants may receive 100% of compensation up to $57,000 | 25% of total compensation plus deferrals. Individual participants may receive 100% of compensation up to $57,000 | 25% of total compensation plus deferrals. Individual participants may receive 100% of compensation up to $57,000 |
| Plan Summary Required | Yes | Yes | Yes | Yes |
| Eligibility for Employer Contribution | All eligible employees receive employer contribution | All eligible employees receive employer contribution | Employees separated prior to year end can be excluded. 1,000 hour rule available | Same as 401(k) except all participants must receive safe-harbor contribution |
| Premature Distributions | Follows qualified plan rules (10% penalty) | Follows qualified plan rules (10% penalty) | Follows qualified plan rules (10% penalty) | Follows qualified plan rules (10% penalty) |
| Rollovers | Roll in or out to IRA or QRP | Roll out to Qualified plans. IRA only after two years of participation | Yes, except to SIMPLE | Yes, except to SIMPLE |
| Control of Account | Employee | Employee | Employer/Employee | Employer/Employee |
| Loans | Not available | Not available | Available | Available |
| Individual Trustee Allowed | No | No | Yes | Yes |
| Start-up Credit | N/A | N/A | 50% of start up costs, up to the greater of $500 or $250/NHC participant up to $5,000 for the first three years | 50% of start up costs, up to the greater of $500 or $250/NHC participant up to $5,000 for the first three years |
| Tax Credit for Low Income Participants | N/A | N/A | 50% tax credit for contributions up to $1,000 ind./$2,000 jt. Max phase out amount: $39,000 single $65,000 joint $48,750 Head of HH | 50% tax credit for contributions up to $1,000 ind./$2,000 jt. Max phase out amount: $39,000 single $65,000 joint $48,750 Head of HH |