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

DEFINITION of '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.

BREAKING DOWN '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 plan: 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, which 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 the SEP plan and SIMPLE plans, but which 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 is will be dependent on many factors, including performance of the investments. Qualified defined benefit plans, on 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.

In particular, for the 2017 tax year, Publication 560 did not cover several rules which may be pertinent to some employees, including the comprehensive IRA rules for employees, the comprehensive rules that apply to distributions from retirement plans, and the comprehensive rules that apply to section 403(b) plans.