IRS Publication 560: Retirement Plans for Small Business

IRS Publication 560

Investopedia / Dennis Madamba

What Is IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)?

IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) delineates and updates the rules each year for employers establishing retirement plans for themselves as well as their employees.

Key Takeaways

  • IRS Publication 560 outlines how a company can establish retirement plans.
  • It is updated every year to reflect changes.
  • 560 covers everything an employer needs to know and adhere to, such as how to set up a plan, how much can an employee contribute, how much is tax-deductible, and more.

Understanding IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) is a document published each year by the Internal Revenue Service detailing information for business owners who wish to set up retirement plans for themselves and their employees.

This document provides details on:

  • The types of plans an employer can set up, including the features of SEP, SIMPLE, and qualified plans
  • How to set up a plan
  • How much an employer can contribute to a plan
  • How much of the contribution is tax-deductible
  • How to treat different distributions
  • How to report information about the plan to the IRS and to employees

Publication 560 delineates four primary employer retirement plans, including SEP plans, SIMPLE plans, and two types of qualified plans: defined-contribution and defined-benefit.

  • SEP plans provide a simplified method for employers to make contributions to a retirement plan for themselves as well as employees. Rather than setting up a profit-sharing or money purchase plan with a trust, an employer may adopt a SEP agreement and make contributions directly to a traditional IRA or a traditional individual retirement annuity (SEP-IRA) set up for themselves and each eligible employee.
  • SIMPLE plans are available to companies with 100 or fewer employees who received at least $5,000 in compensation in a given year. In such cases, an employer may set up a SIMPLE IRA plan under which employees can make salary reduction contributions directly from their paychecks. Employers are then able to contribute matching or nonelective contributions. The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan.
  • Qualified plans, which are more complex than SEP and SIMPLE plans, carry several advantages, including increased flexibility in designing plans and, in some cases, increased contribution and deduction limits. Qualified defined-contribution plans are defined as plans in which the amount the employee contributes each period is fixed and predetermined, and the return will be dependent on many factors, including the performance of the investments. Qualified defined-benefit plans, on the other hand, promise a specific payout to beneficiaries at the end of the policy.

Current Year Requirements for Publication 560 

As with many IRS documents, various stipulations change from year to year, so it is imperative that all those affected by the section of the tax code refer to the latest version. Many employers will require professional guidance.

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