Publication 560: Retirement Plans for Small Business

Publication 560, a resource by the Internal Revenue Service (IRS), provides information on setting up and maintaining retirement plans for small businesses and self-employed individuals.

What's the Purpose of Publication 560?

This publication helps you understand the different types of retirement plans available, their features, contribution limits, and tax benefits. Knowing these details allows you to choose the plan that best fits your business needs and facilitates saving for your and your employees' retirement.

Types of Plans Covered in Publication 560:

A. SEP IRAs (Simplified Employee Pension Individual Retirement Accounts): Easy to set up and administer, ideal for small businesses with few employees. Employers contribute a fixed percentage (up to 25% of compensation or $66,000 in 2023) to each eligible employee's IRA.

B. SIMPLE IRAs (Savings Incentive Match Plan for Employees): Offers employees a salary reduction option with employer matching contributions (up to 3% of salary or $16,000 in 2024).

C. Qualified Plans (including 401(k) plans): More complex to administer but offer greater flexibility. Contribution limits vary depending on the plan type and employee age.

Key Information:

  • Eligibility: Publication 560 defines eligibility requirements for both employers and employees to participate in each plan type.
  • Contribution Limits: The publication outlines the latest contribution limits for both employee and employer contributions, including catch-up contributions for those aged 50 or older.
  • Tax Benefits: It explains the tax advantages associated with each plan, such as tax-deductible contributions and tax-deferred growth of investments.
  • Reporting and Disclosure Requirements: The publication provides guidance on filing requirements for different plan types.

Latest Updates (As of February 2024)

Increased Contribution Limits:

  • Salary reduction contributions (excluding catch-up): $16,000 for 2024.
  • Elective deferrals: $22,500 for 2023, increasing to $23,000 for 2024.
  • Catch-up contributions: $7,500 for 2023, increasing to $8,000 for 2024 (applicable to those 50 or older).