Question

margaret wants to establish a retirement plan for her small but profitable business. she wants the plan to allow employees to contribute to their own retirement but keep the employer contributions low. she is interested in an ira plan form. which of these plans would satisfy margaret's requirement?

Answer 1

Margaret should consider a Simplified Employee Pension (SEP) IRA as it allows flexibility for employer contributions and permits employee contributions to their Individual Retirement Account (IRA), meeting her requirements for a retirement plan.

Step-by-step explanation:

Margaret is interested in setting up a retirement plan that allows for employee contributions but keeps employer contributions low. Considering her needs, a suitable retirement plan would be a Simplified Employee Pension (SEP) IRA. This type of plan is ideal for small businesses and self-employed individuals as it allows employers to make contributions to their employees' retirement savings directly to an Individual Retirement Account (IRA) established in the employee's name. Employers can contribute a fixed percentage of up to 25% of an employee’s pay into a SEP IRA, rendering it flexible in terms of the amount the employer wishes to contribute annually, which addresses Margaret's requirement to keep employer contributions low. Employees cannot contribute to a SEP IRA themselves, but they could also set up and contribute to a Traditional or Roth IRA for additional retirement savings, taking advantage of tax-deferred or post-tax benefits, respectively.