Hello everyone. I hope you are enjoying this summer. A lot of nice days out
there so continue to get out there and be happy. This week's subject is
retirement plans for small businesses. A retirement plan can benefit a small
business owner and their employees in saving for the future. It can also
offer the business deductions for contributions and employers from
employers and tax deferred investment growth for earnings inside the plan for
everyone, there are a few types of plans to consider including I. R. A.
Like plants such as steps or simple iras or qualified plans such as 41 case
or profit sharing plans. Are those all defined benefit plans? Qualified plans
for the most part are more administrative leak, complicated and
expensive to maintain as they have to meet internal revenue code provisions
and what it called Marissa rules to keep the tax benefits if you have a
business, it's worth taking the time to review the advantages and disadvantages
of various plans. You certainly don't need an overly complicated plan. If a
simpler one can do, uh It makes sense to clarify your goals though from the
start, do you want to maximize the amount that you can say for your own
retirement? That maybe a goal? Do you want your employees to be able to
contribute? Do you want to make contributions for your employees?
Another goal. Do you want both pre tax and Roth contributions available? Is
your income from the business fairly consistent? Or would you need to skip
making contributions in some years when things don't go so well? Can your
business afford plan expenses? So lots of things to think about. So let's talk
about Couple of the simple plants. One is actually called a simple employee
pension plant, otherwise known as a set. The good news here is that
contributions don't have to be paid every year. And there are low start up
and operating costs, employees who are aged 21 or older have worked for the
employer for three of the last five years and then $650 or more must be
included in the plan. Another IRA based plant is called a simple Ira. Now
you're able to set up the plan if you have less than 100 employees. Once
again, administration costs are well, Employees can make pretax contributions.
You can make matches up to 3% and an employee earning 5000 or more in any
prior year and is anticipated to earn this amount of the current year. They
participate those a couple of simple plants. Other qualified plans are
called profit sharing plans. Now this plan is flexible in that contributions
are discretionary to remain qualified. However, the contributions must be non
discriminatory and made often enough to be substantial and re occurring. A
formula is used to determine how contributions are allocated to
participants. These participant is given his our own account and they have
to meet certain years of service To participate. Everyone's heard of the
401K plan, a little more complicated, more expensive to administer. There are
some tests that are involved. You can't discriminate against certain people
over other people. Otherwise you need to put some safe harbor dollars in,
especially if the highly compensated people have a bigger proportion of
value of account. Then the non highly compensated. Typically you need a plan
administrator and these can be expensive. Another type of plan is the
old defined benefit plan. Some people still do that. This is where an
employer can max out their own deductions. Very costly and complex to
administer but could be beneficial, especially if you want to. Very, very
small business that makes a lot of money and you want to put that money
away on a tax deductible basis. Now keep in mind that contribution funding
limits and other laws may change periodically over time. Be sure to
review current laws and rules. It is also wise to discuss setting up a plan
and funding it with your business or financial advisor before moving forward.
Take care and we'll talk with you next week.