Simplified Employee Pension Plans - Pros and Cons

A simplified employee pension plan is one alternative that businesses have to help fund their employees retirements. This is a unique plan that gives you some different advantages and options compared to some of the more popular plans out there. With a simplified employee pension plan, you are helping to prepare your employees for their retirement. Therefore, it is essential that you understand the basics of a simplified employee pension before you consider getting one for your company. Here are some things to know about a simplified employee pension and how it works.


Less responsibility- With this type of plan, you do not have as much responsibility as you do with other plans. The employer puts the money directly into the account. The money never goes to the employee and therefore, there is no decision that you have to make about how much to put away.

Low fees- Unlike other types of retirement accounts, these accounts actually have low fees in most cases. With a 401k or other type of IRA, you might eat up a good percentage of the money that you make in fees. This is not the case with a simplified employee pension plan. 

Tax-deferred- The money that you make in the retirement account from investments is allowed to grow tax-free. This means that you do not have to worry about paying taxes at any point before you retire. Once you reach the age of 59.5, you will then be able to get the money out. At that point, you will start to pay taxes on the money. However, this allows you to make a lot more money with compound interest and no taxes.

Tax deductible- Your employer gets to deduct the contributions that they make into the fund from their taxes. Therefore, they do have an incentive to put quite a bit of money in there for you. They can save a substantial amount of money on their taxes in this manner.


Contributions- Contributions to the simplified employee pension plan are a little different than other types of IRA's. With this type of plan, the money goes directly from the employer into the account. While that can be thought of as an advantage, because you don't have to worry about it, it can also be a disadvantage. The employee has no say over how much goes into the account and the entire burden is shifted to the employer. Therefore, your retirement is really at the hands of someone else. 

No guarantees- With this type of plan, there are no requirements for contributions from your employer. If they choose to take a year off from contributing anything, they can do so. There is nothing that you can do about it. If business is particularly bad one year, they can decide to keep the money in savings and not disburse it to the simplified employee pension plan. This can really put a hamper on your ability to grow your retirement account. 


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