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What is SIMPLE IRA, SEP IRA, Traditional IRAs, and Roth IRA

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A Savings Incentive Match Plan for Employees (SIMPLE IRA) is a small business retirement plan that is easy to set up, and has low contribution and matching

requirements for employers. It allows employees to contribute more than they could with traditional or Roth IRAs.

Cost per employee. There are usually no setup fees for this type of plan. Participating employees pay fund trades and expense ratios. Depending on the plan provider,

there may be account service or maintenance fees.

Contribution structure. Employees have the option of contributing to their accounts through elective deferrals. There is no Roth option for this plan. Employers must

contribute either 2% to all employee accounts or match 3% of employee contributions. Contributions are 100% vested. Self-employed people who choose this plan can

contribute to it both as employee and employer.

2021 contribution limit is $13,500 for employees, or $16,500 for employees age 50 and over. Employers aren’t allowed to exceed the 2% contribution or 3% match.

Type of filing. Doesn’t require employers to file IRS form 5500 or submit to nondiscrimination testing.

Ideal for small businesses with 100 or fewer employees that want to keep their costs low and allow employees contributions.
Key takeaway: A SIMPLE IRA I a way for employees to contribute more money than they can with a 401(k) plan. It has low employer contribution and matching requirements.

SEP IRA
A Simplified Employee Pension, or SEP IRA, is a retirement savings plan that’s inexpensive for employers to establish and easy to maintain. Employer contributions

aren’t required annually, making it a good option for business owners who only want to contribute during high-profit years.

Cost per employee. There are usually no setup fees for this type of plan. Plan participants pay trading commissions and fund expense ratios. Depending on the plan

provider, there may be account service or maintenance fees.

Contribution structure. Only employers may contribute to employee accounts. Contributions must be the same percentage of compensation for every participant. Employers

aren’t required to contribute to accounts every year. Contributions are immediately 100% vested.

2021 contribution limit is the lesser of $58,000 or 25% of the employee’s compensation. There are no catch-up contributions allowed for this plan type.

Type of filing. Doesn’t require employers to file IRS form 5500 or submit to nondiscrimination testing.

Ideal for businesses of all sizes that want a plan that’s easy to set up and maintain, and allows employers the flexibility of choosing which years they make

contributions to employee accounts.
Key takeaway: A SEP IRA is designed for employers who want to choose when they make contributions to the plan. For example, it allows them to only make contributions

during high-profit years.

Traditional IRAs
Individual retirement accounts (IRAs) are the simplest types of retirement accounts to set up. Furthermore, nearly everyone is eligible – freelancers, business owners,

and even people who already have employer-sponsored retirement plans. This type of plan is a popular option for people who have 401(k) assets from previous jobs that

they need to roll over into a new retirement account. There’s usually no cost to set up an IRA, but you will pay trading fees and fund expense ratios.

This type of retirement account allows you to make annual tax-deductible contributions, depending on your modified adjusted gross income and whether or not you have a

workplace-sponsored account. Earnings on principal and interest accumulate on a tax-deferred basis.

2021 contribution limit is $6,000. If you’re age 50 or older, you can make a $1,000 catch-up contribution.

Contribution rules. You can contribute to your account until age 70 and a half at which time, required minimum distributions (RMDs) are mandatory. You can withdraw

funds penalty-free at age 59 and a half.

Ideal for individuals who anticipate that their tax rates will be lower during retirement years, as this account allows you to defer taxes until you withdraw your

money.
Key takeaway: A traditional IRA is the easiest retirement plan to set up. Anyone is eligible to participate. There are usually no set up costs.

Roth IRA
This type of retirement account differs from traditional IRAs in that contributions aren’t deductible; rather, you’ve already paid income taxes on the money you

invest, allowing interest to grow tax-free. It also has no age limits on contributions and has different withdrawal rules.

Contribution limits. The 2021 contribution limit is $6,000. If you’re age 50 or older, you can make a $1,000 catch-up contribution.

Contribution rules. There’s no age limit on contributions, so unlike traditional IRAs, you can continue contributing to your account past age 70 and a half. In

addition to waiting until you’re age 59 and a half to withdraw your funds, the account must have been established at least five years before you make withdrawals.

There are, however, no RMDs during your lifetime.

Defer taxes. Ideal for individuals who expect tax rates to be higher during retirement years. Because Roth contributions have already been taxed, your money grows

tax-free, and there are no additional taxes to pay when you withdraw it.
Key takeaway: The contributions made to a Roth IRA are not tax deductible. Employees can continue contributing to the account regardless of how old they are.

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