My company has three partners but plans to hire more this year. Would we be better off with an SBO-401(k) or a SIMPLE IRA?
The SBO-401(k) plan is suitable if the plan covers only the business owners - in this case, the partners in the partnership. If the other employees who are not owners of the business meet the eligibility requirements, a savings incentive match plan for employees of small employers (SIMPLE), simplified employee pension (SEP) or profit-sharing plan may be more suitable for the business.
Assume that the eligibility requirements are as follows:
- employees must reach age 21, and
- employees must perform at least one year of service. For this purpose, the service requirement could be one in which individuals who work fewer than 1,000 hours during a 12-month period will not be considered to have accrued a year of service.
If any one of the employees meets these requirements, the partnership is not eligible to adopt the SBO-401(k). Business owners should be careful about the eligibility requirements they select for the plan, as they do not want to exclude themselves; if the business owners do not meet the age and service requirements, they too would be excluded.
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This question was answered by Denise Appleby
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