The Retirement Planning Matrix

December 7th, 2015
Feature401(K)Solo 401(k), Solo-K, Uni-K, One-participant k or Individual 401(K)Safe Harbor 401KSIMPLE 401(K)Profit SharingSEP IRASIMPLE IRAPayroll Deduction IRACash Balance Plans
Basic Plan TypeDefined ContributionDefined ContributionDefined ContributionDefined ContributionDefined ContributionIRA BasedIRA BasedDefined ContributionDefined Benefit Plan
Who Generally AdoptsCorporations, Partnerships, Limited Liability CompaniesSole Proprietorships, Partnerships, Limited Liability Companies and Corporations with No Common Law EmployeesSole Proprietorships, Partnerships, Limited Liability Companies and CorporationsSole proprietorships, Partnerships, Limited Liability Companies and Corporations with 100 or fewer Eligible EmployeesSole Proprietorships, Partnerships, Limited Liability Companies and CorporationsSole Proprietorships, Partnerships, and Small BusinessesSole proprietorships, Partnerships, Limited Liability Companies and Corporations with 100 or fewer Eligible EmployeesCorporations, Sole Proprietors, Partnerships, and Non Profit Entities.Sole Proprietorships, Partnerships, Limited Liability Companies and Corporations
Can employer sponsor other Retirement PlansYesYesYesNoYesYes with RestrictionsYes with RestrictionsYesYes
Establishment DeadlineBy the last day of the plan year for which the plan is effective.By the last day of the plan year for which the plan is effectiveAny date between January 1st and October 1st; may not have an effective date that is before the date plan actually adoptedAny date between January 1st and October 1st; as soon as administratively feasible for businesses established after October 1stBy the last day of the plan year for which the plan is effectiveEstablished by the time the corporate tax return (with extensions) is filed for the tax year in which the deduction is being takenAny date between January 1st and October 1st; as soon as administratively feasible for businesses established after October 1stTax filing deadline not including extension (Usually April 15th).By the last day of the plan year for which the plan is effective
Who Can ContributeEmployee; employer contribution optionalEmployee; employer contribution optionalEmployee and employerEmployee and employerEmployerEmployerEmployee and employerEmployeeEmployer Only
2014 Contribution LimitsEmployee Elective Deferral limits for 401(k) plans, $17,500Elective deferrals of $17,500, Employer nonelective contributions: 25% of compensation, Total Contributions Cannot Exceed $52,000Employee Elective Deferral limits for 401(k) plans, $17,500Employee Elective Deferrals, $12,000Lesser of 25% of Compensation or $52,000.25% of the employees compensation, or $52,000.120005500Maximum Annual Benefit at Retirement is $210,000
2015 Contribution LimitsEmployee Elective Deferral limits for 401(k) plans, $18,000Elective Deferrals of $18,000, Employer nonelective contributions: 25% of compensation, Total Contributions Cannot Exceed $53,000Employee Elective Deferral limits for 401(k) plans, $18,000Employee Elective Deferrals, $12,500Lesser of 25% of Compensation or $53,00025% of the employees compensation, or $53,000125006500Maximum Annual Benefit at Retirement is $210,000
2014 Catch-up Contributions for Participants Age 50 or over5500$23,000 if age 50 or over550025005500Catch-up contributions apply only to employee elective deferrals.25005500N/A
2015 Catch-up Contributions for Participants Age 50 or over6000$24,000 if age 50 or over600030006000Catch-up contributions apply only to employee elective deferrals.30006000N/A
IRA Reporting by EmployerForm 5500Form 5500-EZ when plan assets reach $250,000Form 5500Form 5500From 5500NoneNoneNoneForm 5500

Retirement planning is a crucial aspect for any individual. Every working person is encouraged to set up an IRA. There are different types of IRAs to choose from. If you have questions such as ‘what is an IRA’, or ‘what is Self-Directed Roth IRA’, then you have come to the right place.

Major types of IRAs

  • IRA:

Individual Retirement Account is used to accumulate wealth for retirement. All contributions to the IRA are made using pre-taxed dollars which allow the funds to grow tax-deferred till it is withdrawn. The eligibility requirements for an individual interested in opening and contributing to an IRA are:

  • The concerned individual should have earned taxable income
  • The individual is under 70.5 years of age

$5,000 is the maximum one can contribute towards a traditional IRA. For those over 50, an extra $1,000 may be contributed, raising the maximum contribution to $6,500.

  • Self-Directed IRAs

Self-directed IRA is similar to traditional IRA, except that it offers more investment options to individuals. You can diversify your retirement portfolio and have complete control over your investment. The eligibility requirements and maximum contribution stay the same as traditional IRAs.

  • Roth IRA

Roth IRA is used for accumulating wealth for retirement and contributions are made with money that has already been taxed. This allows you to have tax-free withdrawals during retirement. To contribute to Roth IRA, two eligibility criteria must be fulfilled:

  • The individual should have earned taxable income
  • The individual or couple’s modified adjusted gross income (MAGI) is below the allowable requirements

The maximum contribution allowed for Roth IRAs in 2015 is $5,500. For individuals over the age of 50, an extra $1,000 may be contributed, raising the maximum contribution to $6,500.

  • Self-Directed Roth IRA

They offer more investment options than traditional Roth IRAs. You can diversify your retirement portfolio and have complete control over the investments. Eligibility criteria and maximum contribution remain the same as traditional Roth IRA.

  • 401(K)

This is a retirement saving plan sponsored by an employer, where the workers can save and invest some part of their paycheck before taxes are taken out. The taxes are not paid until withdrawal from the 401(k) account. The maximum contribution can be up to $15,500 in any combination of pre- and after-tax dollars. If you’re older than 49, you can contribute another $5,000.

  • SEP IRA

The Simplified Employee Pension (SEP) IRA can be set up by any employer for his employees. The employer is allowed to contribute up to $30,000 or 15% of an employee’s compensation annually to each employee’s IRA.

  • SIMPLE IRA

Savings Incentive Match Plan for Employees (SIMPLE) IRA is a traditional IRA that a small employer sets up for his firm’s employees. It is a start-up retirement savings plan for employers who aren’t currently sponsoring a retirement plan. Employees can contribute up to $8,000 a year ($9,000 if 50 years or above); the employer will match a portion of the employee’s contribution.

  • Education IRA

It provides funds that will allow your beneficiary to pay for their higher education. There are no tax deductions for the contributions, but all deposits and earnings may be withdrawn free of tax and penalties if they are used to pay for higher education. You can contribute a maximum of $2,000 a year. The beneficiary must be 18 or younger; however, there are no limits on a beneficiary’s income.

  • Rollover (Conduit) IRA

You can set up this traditional IRA to receive a distribution from a qualified retirement plan. There are no contribution limits to the distributions transferred to a rollover IRA. The distribution may also be eligible for subsequent transfer into a qualified retirement plan available through a new employer.

  • Inherited IRA

It can be a Traditional or a Roth IRA that is acquired by a non-spousal beneficiary of the deceased IRA owner. There is no tax deduction for its contributions and the proceeds must be distributed and taxed within a specific period as established by the Internal Revenue Code.

  • Traditional IRA

This is the regular IRA that is available for people under the age of 70.5 years with an earned income. All the earnings within this IRA grow tax-deferred till they are withdrawn. Once the owners reach 70.5 years or above, withdrawals must begin, which will be taxed. However, if required distributions are not taken at that age, there will be a 50% penalty on the amount not taken. The contributions may or may not be tax deductible depending on various factors.

  • Group IRA

This is a traditional IRA that can be set up by employers, employee associations and unions for their members and employees.

Opt for the IRA that works best for you. Consult with your estate planning lawyer to reach a better and an informed decision.