The Employee Retirement Income Security Act of 1974 regulates retirement plans offered by private employers. This federal law sets the guidelines for how plans are run, who can participate and what rights participants have. Generally, individual retirement accounts are not ERISA-qualified. There is an exception for certain types of employer-sponsored IRAs.
A savings incentive match plan for employees is an ERISA-qualified IRA plan designed for small businesses with 100 workers or fewer. Your employer sets up the SIMPLE IRA for you and you add money to your account through payroll deductions. As of 2013, the maximum you could put in a SIMPLE IRA each year is $12,000. You can put in an extra $2,500 if you're over age 50. Your employer also has to match a percentage of what you put in each year.
Small-business owners also can set up a simplified employee pension IRA for savings-minded employees. If your job offers this kind of plan, your employer will set up a traditional IRA for you and kick in money on your behalf. As of 2013, employers could contribute the lesser of 25 percent of your compensation or up to $51,000. With a SEP IRA, you're always 100 percent vested, which means all of the money in the account always belongs to you. When it comes to taxes, SEP IRAs are good for employers because they can write off their contributions, but you'll be stuck paying income taxes on any money you take out.
If you're planning a career change or you lose your job, you don't have to worry about leaving your retirement savings behind. It's fairly easy to transfer money from a SIMPLE or SEP IRA into another individual retirement account. As long as you don't add any more money to your IRA after you roll it over, ERISA will protect your account from creditors if you ever file for bankruptcy.
If your job doesn't offer a SIMPLE or SEP IRA, you can still use a traditional or Roth IRA to build your retirement nest egg. Since you're responsible for setting aside cash on your own, these kinds of IRAs aren't protected by ERISA. You may be able to write off contributions to your traditional IRA, but you'll have to pay taxes on the money once you start taking it out. You won't get a deduction for money you put into a Roth IRA, but your withdrawals are generally tax-free. As of 2013, you can sock away up to $5,500 a year in either type of IRA. The limit is bumped up to $6,500 if you're 50 or older.
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