Choosing the Right Plan

Experts estimate that in the American workforce as a whole, workers will need 70 to 90 percent of their pre-retirement income to maintain their current standard of living when they stop working. Lower income earners may need more than 90 percent. Among these workers 25-64 years of age, a little more than half are participants in an employer-sponsored retirement plan.

Choose a Retirement Plan

The most basic retirement plan is an Individual Retirement Arrangement (IRA). Private-sector employers (for-profit and not-for-profit) and government employers can offer savings plans that use IRAs to hold savings contributions.

IRA-based plans include Payroll Deduction IRAs, Simplified Employee Pension plans (SEPs), and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA plans). In these plans, and also with 401(k), 403(b) and 457(b) plans, the ultimate retirement benefits depend on the dollar amount accumulated in the employee’s account.

A defined benefit plan promises a specific benefit at retirement — $1,000 a month, for example. The amount of this benefit is often based on a set percentage of pay multiplied by the number of years the employee worked for the employer offering the plan.

Advantages of Having a Retirement Plan

By starting a retirement savings plan, you will help your employees save for the future, and you will help secure your own retirement. Retirement plans may also help you attract and retain better qualified employees.

Tax law changes and tax advantages, as follows, have made it more appealing than ever to establish and contribute to a retirement plan.



·       Higher contribution limits so that employees and employers can contribute larger amounts to retirement plans.

·       Catch-up rules that allow employees age 50 and over to set aside additional amounts.

·       Increased portability of retirement money.


· In some plans, employees can invest a certain amount of their income before it is taxed.

· A tax credit is available for eligible contributions to a retirement plan, known as the Retirement Savings Contributions Credit. This credit could reduce federal income tax up to 50 cents on the dollar.

· Money in the retirement program grows tax-free.

Retirement Plan Correction Programs

The IRS has programs structured to provide financial incentives for finding and correcting mistakes earlier rather than later. In fact, many mistakes can be corrected easily, without penalty and without notifying the IRS.

The IRS system of retirement plan correction programs, the Employee Plans Compliance Resolution System (EPCRS), helps business owners protect participant benefits and keep their plans within the law. EPCRS includes:

Self-Correction Program (SCP) — Find and correct a mistake before an audit.

Voluntary Correction Program (VCP) — Correct your plan’s mistakes with help from the IRS.

Audit Closing Agreement Program (Audit CAP) — If the IRS audits your plan and finds an error, you can still correct the problem. However the fee will be larger than if you had found and fixed the error yourself.


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