Simplified Retirement Plans For Small Businesses

     The Internal Revenue Code encourages people to plan for their retirement by providing tax incentives for both employers and employees to establish and participate in qualified pension and profit sharing plans. The rules are rather complex however and can be quite challenging for a small business such as a divorce lawyer
with only a few employees and no human resource professionals on staff.

     Congress recognized the reality of this obstacle though, and the law allows small businesses to drop some of the formal requirements for a plan by setting up either a Simple Employee Pension also known as a "SEP" or a Simple Retirement Plan.

     In a Simple Retirement Plan the employees, who elect to participate, can contribute toward the pension plan with the employer making additional contributions for the employees’ benefit. The employers contribution can be either a matching contribution of up to 3% of the employee’s compensation, or 2% of the compensation of every employee eligible to participate in the plan whether he or she elects to make contributions or not.


     Under a SEP on the other hand the contributions are made by the employer.

     Either a Simple Retirement Plan or a SEP may be funded by the purchase of an IRA.