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I am part owner of a business with two other business partners, both are nearing retirement. The company employs around 15 employees and for the last 15 years or so there has been a Simple IRA in place. The three owners have been the only contributors. The same investment broker who has managed the other two owners investment accounts for decades has been the broker for this Simple IRA. Prior to the Simple, there was a 401K in place which apparently had issues with significant contribution limits for the owners. I don't have all the details but it sounds as if the owners were capped at a certain percentage based on the contributions from the other employees. Since there was little (if any) participation by any of the other employees, the owner contributions were minimal and the administrative costs were expensive.
This year, the other two owners have stopped their Simple contributions and no longer intend on contributing into a retirement plan. I am the only person participating and some research on my part seems to indicate the Simple is not the best option for me. I inquired with the broker about ending the Simple & opening a 401K, possibly a Roth 401K. He only works with American Funds and he reached out to me today with the following info. The Simple costs $10 per participant per year to manage and the limit is $13K. The Company can (and does) contribution 3% of my annual compensation. If other participants were involved in the plan, the company would contribute the same for them as well. A 401K is available as a Roth option and I could contribute 19K, the Company could contribute up to 25% with a max of 55K. However, the costs to administer would be $2,500-$3,000 with a lot of paperwork & reporting.
I haven't looked into other 401K programs, but is there any reason I can't use a company like Vanguard to open a 401K and avoid a lot of these costs? Or is $2,500 the going rate? The 401K seems like the more desirable option for me, particularly if no one else contributes. Are those rules that were once imposed about percentage of contribution based on other employees contributions no longer valid? If I were to make the move to a 401K, I like the idea of the roth contributions, is there any reason why that wouldn't be a good idea? Are there factors or words of caution in this decision that I'm not considering?
Thank you.
This year, the other two owners have stopped their Simple contributions and no longer intend on contributing into a retirement plan. I am the only person participating and some research on my part seems to indicate the Simple is not the best option for me. I inquired with the broker about ending the Simple & opening a 401K, possibly a Roth 401K. He only works with American Funds and he reached out to me today with the following info. The Simple costs $10 per participant per year to manage and the limit is $13K. The Company can (and does) contribution 3% of my annual compensation. If other participants were involved in the plan, the company would contribute the same for them as well. A 401K is available as a Roth option and I could contribute 19K, the Company could contribute up to 25% with a max of 55K. However, the costs to administer would be $2,500-$3,000 with a lot of paperwork & reporting.
I haven't looked into other 401K programs, but is there any reason I can't use a company like Vanguard to open a 401K and avoid a lot of these costs? Or is $2,500 the going rate? The 401K seems like the more desirable option for me, particularly if no one else contributes. Are those rules that were once imposed about percentage of contribution based on other employees contributions no longer valid? If I were to make the move to a 401K, I like the idea of the roth contributions, is there any reason why that wouldn't be a good idea? Are there factors or words of caution in this decision that I'm not considering?
Thank you.
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