There are some significant differences between a 401(k) plan and a traditional Individual Retirement Account (IRA). A company establishes a 401(k) for employees and can offer matching contributions to help with employee retention. The
401(k) does not have personal income restrictions to participate (except in rare cases). The 401(k) also provides employers with the flexibility of optional contributions to their employees’ 401(k). The 401(k) also allows a participant to contribute nearly 3x more than the maximum for an IRA.
Maybe you’re not sure if a 401(k) is right for you. The chart below summarizes the most common retirement plans for small businesses. We encourage you to talk to your accountant, financial advisor or one of our Retirement Plan Consultants to determine which type of plan best suits your business goals and employees’ needs.
Retirement plans go head-to-head
Feature |
Intuit 401(k) |
SIMPLE IRA |
Traditional IRA |
|---|---|---|---|
Who can contribute? |
Employee & employer |
Employee & employer |
Employee |
Maximum employee contribution in 20121 |
$17,000(or 100% of salary, whichever is less) |
$11,500(or 100% of salary, whichever is less) |
$5,000(tax-deductible portion) |
Catch-up employee contributions allowed for those age 50 or older1 |
$5,500 |
$2,500 |
$1,000 |
Safe Harbor match employer contributions |
OptionalIf chosen, match only applies when employees contribute; up to first 4% of salary. |
Must offer employer match or profit-sharing (see below)Employer match available only when employees contribute; up to first 3% of salary. |
Not applicable |
Profit-sharing employer contributions |
OptionalCan decide amount after year ends, before filing business tax return. |
Required if no employer match (see above)Must contribute 2% of salary for all employees regardless of whether they contribute anything. |
Not applicable |
Maximum annual contribution (employee + employer)2 |
$50,000 individual limit per employee |
$11,500 + 3% of salary3 |
$5,000(tax-deductible total) |
 |
|
|
1 The amount of taxes saved depends on your federal and state personal income tax rates. 2012 contribution limit for tax-deferred funds into a 401(k) plan is $17,000 ($22,500 for those age 50 or older). Savings calculation assumes you are in the 28% tax bracket.
2 Limits are adjusted each year for inflation.
3 Several formulas exist; this is one example of how to compute employer contribution.
This chart is not considered a comprehensive review of each plan type, and is not intended to provide legal, tax or investment advice. It is intended to be general in nature. Consult your accountant, legal or financial advisor for advice specific to your situation.
