Question

A smaller business with variable cash flow is looking to establish a pension plan for its 50 employees. It wants a plan that allows it to contribute the largest possible amount for its employees, but wants the flexibility to reduce contributions in lean years. the best recommendation is a:_________

Answer 1

Answer:

SEP IRA

Explanation:

A SEP IRA means , a Simplified Employee Pension IRA, which is easier to set up and administrate than most other pension plans.

The Simplified Employee Pension IRA allows the employer to make a deductible contribution of a maximum of 25% of an employee's income (20% effective rate), capped at $54,000 in 2017.

The Simplified Employee Pension IRA has a key advantage which is that, it allows the employer to vary the contribution percentage each year .

In this case, a smaller business should make use of Simplified Employee Pension IRA, because it is easier to set up and have other benefits that are okay for such type of business.

Answer 2

Answer: The correct answer is C). SEP IRA

Explanation: A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees.

It allows an employer to make a deductible contribution of a maximum of 25% of its employee's income and capped at $54,000 in 2017. Each year also, the employer is allowed to vary the contribution percentage.

A SEP IRA is a pension plan that is very easy to set up and administrate than most other pension plans.