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Tax-deferred retirement plans offered through work generally have higher contribution limits than individual saving plans. For this reason- and because some employers offer a company match- financial advisors often recommend contributing the maximum through these plans each year.
Small business plans: SEP-IRA, SIMPLE-IRA
If you're a sole proprietor, partner, or owner of a small business, you can set up an easy-to-manage retirement plan. Both the SEP-IRA and SIMPLE-IRA let you invest for your future without requiring employer tax filings or complicated recordkeeping.
The following chart can help you decide which of the two plans might be more appropriate in your situation:
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SEP-IRA |
SIMPLE-IRA |
| Financial Benefits |
1. Contributions are tax-deductible to employer
2. Earnings are tax deferred
3. Employer contributions may vary each year or skip a year
4. Benefits are 100% immediately vested. |
1. Contributions are tax-deductible to employer
2. Employee contributions reduce taxable income
3. Earnings are tax deferred
4. Benefits are 100% immediately vested. |
| Employer Profile |
Self-employed individuals and smaller firms, corporate or non-corporate, seeking to minimize filings and paperwork.
Employer may also offer other retirement plans. |
Employers with 100 or fewer employees who received $5,000 or more in compensation in the previous year.
Employer may not offer other retirement plans |
| Employee Eligibility |
All employees over age 21 who have worked for employer for up to 3 of 5 preceding calendar years.
Employees may also contribute to an IRA |
Employees who have made over $5,000 in any two preceding calendar years and reasonably expect to receive $5,000 during current calendar year.
Employees may also contribute to an IRA |
| Contributors |
Optional by employer only |
Mandatory by employer; optionally by employe |
| Contribution Limits |
Employer may contribute up to 25% of employee's compensation or $44,000, whichever is less, annually. For participants age 50 or older, an additional catch-up contribution of $4,000 is permitted. Employer may deduct up to 25% of all participants' compensation |
Employer may make 3% matching contribution or 2% non-elective contribution. For participants age 50 or older, an additional catch-up contribution of $2,500 is permitted.
Employees may elect salary-reduction contributions up to $10,000 |
| Contribution Deadline |
Employer's filing date for federal tax returns (including extensions). |
Employer's latest date during any calendar year is October 1. Employees must be given 60 days notice prior to the first day the plan is available. |
| Plan Set-Up Deadline |
Employer's filing date for federal tax returns (including extensions). |
Employer's filing date for federal tax returns (including extensions). Salary reduction must be remitted no later than 30 days following the month of reduction. |
Want to learn more about a Calvert SEP-IRA or SIMPLE IRA? Consult your financial advisor or talk with a Calvert representative at 1.800.368.2748.
Qualified employer plans: 401(k) and 403(b)
Conventional pension plans, called defined benefit plans, are offered by fewer employers as time goes on, and defined contribution plans -- 401(k) and 403(b), for example -- are often the only retirement saving options people have through their work.
These plans offer many benefits for savers, and most financial advisors encourage their clients to take maximum advantage of plan options and flexibility before investing for retirement in other savings plans. Here's why:
- Your contributions are made with pre-tax dollars and can be made through payroll deduction.
- Companies may offer an "employer match," contributing an amount equal to your contribution up to a company-set maximum.
- Any account earnings grow tax-deferred, so your money may grow more quickly than it would in a taxable account.
- Most plans offer an array of investment options, and you decide where your contributions go.
- Account assets are yours and are portable. When you leave your job, you may decide to roll over the money into a new employer's plan or into a Rollover IRA.
- In addition to offering high annual contribution limits, the plans permit additional "catch-up" contributions for people age 50 and older.
Socially and environmentally responsible investment options (SRI) are now offered in many employer plans. If your plan does not provide an SRI option, speak with your benefits administrator or human resources representative about the benefits of adding one to your retirement plan. Or, ask them to call Christine Teske, Vice President of Calvert's Institutional Group, at 301.951.4871 or 800.327.2109 for more information.
Individual and Employer Savings Plans Contribution Limits
| |
2005 |
2006 |
2007 |
2008 |
| IRA annual contribution* |
$4,000 |
$4,000 |
$4,000 |
$5,000 |
| Catch-up for age 50+ |
$500 |
$1,000 |
$1,000 |
$1,000 |
| 401(k), 403(b) |
$14,000 |
$15,000 |
$15,000** |
$15,000** |
| Catch-up for age 50+ |
$4,000 |
$5,000 |
$5,000** |
$5,000** |
| SIMPLE IRA |
$10,000 |
$10,000** |
$10,000** |
$10,000** |
| Catch-up for age 50+ |
$2,000 |
$2,500 |
$2,500** |
$2,500** |
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