A Recommendation for Ed

A Recommendation for Ed

FIN/422

A Recommendation for Ed

The plan that I feel would be best for Ed would be a SIMPLE IRA plan. The term SIMPLE is an acronym for Savings Incentive Match Plan for Employees of Small Employers. This plan is better than most plans offered because it would be a much more affordable plan for Ed to offer. A SIMPLE IRA plan allows both the employer and the employees to contribute to the IRA account. This is a really good plan for small businesses that have a small number of employees.

One reason that this plan is so desirable to small businesses is because they are truly simple. The startup and maintenance costs for a SIMPLE plan are very low when compared to other plans. Another reason this plan is desirable is because the employee has some degree of control over how much and when the SIMPLE IRA may be funded since the responsibility of funding the SIMPLE IRA is split between the employee and employer. This makes it both desirable for the employee and the employer.

The first step for this plan is for the employer to establish a traditional IRA account. Once established, the employer and the employee start to make contributions into the account. The contributions that are being made are part of their pretax compensation to the plan, so this essentially means that the tax on the money is deferred until it is distributed. The contribution to be made is either an elective deferral or salary reduction contribution.

The employer is required to make either matching contributions, which is based only on elective deferral contributions by the employees, or non-elective contributions, which are paid to all eligible employees regardless of whether the employee made a salary reduction contribution to the plan. When there is a matching contribution made by the employer, it can match the employee’s elective-deferral contribution dollar for dollar up to the maximum of 3% of the employee’s compensation.

The SIMPLE IRA plan is similar to other employer plans in the way that it allows employers a tax deduction for contributions that they are making to the SIMPLE IRA plan. The contributions made to a SIMPLE IRA plan are not taxed, but when distributions are made from the SIMPLE IRA, those are taxed.

I believe the SIMPLE IRA is the best plan for Ed because it is the most cost efficient for Ed, since he does have a small business and is not currently sponsoring another retirement plan. The SIMPLE IRA is also a great plan for his employees because they do have some control over how their plan is going to work, since they are making contributions to it along with Ed. This plan gives more control to the employee to determine how they want their retirement fund to grow, while being more cost efficient for Ed’s business.

As you can see, the SIMPLE IRA plan is going to be the most efficient for Ed and his employees, especially since he has a very small business. This is going to be the most cost efficient plan, while still having great benefits for his employees. One of the best perks of this plan is that Ed must match up to 100 percent of the employee’s deferral up to a limit of 3% of the employee’s salary or he must contribute 2% of every employee’s salary, whether or not they have elected to participate in the plan.

Place an Order

Plagiarism Free!

Scroll to Top