The Truth About Funding Your Employees Retirement Pension Plan

For businesses that employ less than 100 employees, an emerging popular choice of retirement pension plans is the Simple IRA. Many small businesses are choosing this plan because it is simple for them to deal with and not so expensive that it hurts the business. With this plan employees can decide to contribute to it or they may decide not to contribute anything themselves. Although various small businesses have found a Simple IRA to be a great choice, as with any plan there are both pros and cons to consider before making a final decision.

The Pros of Simple IRAs First, let us examine the pros of a Simple IRA retirement pension plan. 1. One big thing in the favor of Simple IRAs is that they are significantly cheaper to start and maintain than other programs, such as 401ks. 2. Simple IRAs also allow the business owner to have a bit more flexibility as well with the contributions. 3. While these plans require that you match up to 3% of what the employee contributes to the account, you can reduce this amount in 2 out of five years, as long as you reduce it no more than 1%. This is a great advantage of this retirement savings plan. Employers can save money on payroll related costs.

The Cons of Simple IRAs Simple IRA retirement pension plans do have some disadvantages as well that you need to consider. First, you cannot use Simple IRAs if you have more than 100 employees. Even if you only have 101 employees in your company, you are not eligible for this plan. 2.The penalty for early withdrawal is also another disadvantage. If you withdraw money from your Simple IRA, even to roll it over into a 401k plan, you will incur a penalty. The penalty is 25% if you withdraw your retirement money in the first 2 years. 3. You cannot borrow from your Simple IRA either as you can with a 401k plan. 4. Some employers find that another disadvantage is that they must contribute for all of their employees, even if the employee does not want to contribute to the account. Finally, you cannot contribute to any other plans while using this plan either.

While Simple IRAs are great for some companies, other companies may find that Simple IRAs have too many conditions attached to them. Some small businesses may find that an SEP IRA or even a Simple or SOLO 401k plan is a better choice for them than a Simple IRA. Simple IRA retirement pension plans do have many advantages, but you must consider both the advantages and disadvantages carefully before making your final decision.

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