Introduction

This publication discusses retirement plans you can set up and maintain for yourself and your employees. In this publication, "you" refers to the employer. See Definitions You Need To Know, later. This publication covers the following types of retirement plans.

• SEP (Simplified Employee Pension) plans.
• SIMPLE (Savings Incentive Match Plan for Employees) plans.
• Qualified plans (also called H.R. 10 plans or Keogh plans when covering self-employed individuals).

SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan.

Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan.

What this publication covers. This publication contains the information you need to understand the following topics.

• What type of plan to set up.
• How to set up a plan.
• How much you can contribute to a plan.
• How much of your contribution is deductible.
• How to treat certain distributions.
• How to report information about the plan to the IRS and your employees.

Basic features of retirement plans. Basic features of SEP, SIMPLE, and qualified plans are discussed below. The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1.

SEP plans. SEPs provide a simplified method for you to make contributions to a retirement plan for your employees. Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for each eligible employee.

SIMPLE plans. A SIMPLE plan can be set up by an employer who had 100 or fewer employees who earned at least $5,000 in compensation for the preceding calendar year and meets certain other requirements. Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. In addition, you will contribute matching or nonelective contributions. The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan.

Qualified plans. The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. However, there are advantages available to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases.

What this publication does not cover. Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, this publication does not contain all the rules and exceptions that apply to these plans. You may also need professional help and guidance.

Also, this publication does not cover all the rules that may be of interest to employees. For example, it does not cover the following topics.

• The comprehensive IRA rules an employee needs to know. These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs).
• The comprehensive rules that apply to distributions from retirement plans. These rules are covered in Publication 575, Pension and Annuity Income.

Table 1. Key Retirement Plan Rules

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

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