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SMALL BUSINESS RETIREMENT SOLUTIONS RETIREMENT PLAN Choosing the right Benefits ®
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SMALL BUSINESS
RETIREMENT SOLUTIONS
RETIREMENT PL ANChoosing the right
1250 Capital of Texas Highway S.Building 2, Suite 125Austin, TX 78746
Member NASD/SIPCA Registered Investment AdvisorNFP Benefits is a division of NFP Insurance Services, Inc.
Benefits®
Benefits®
Securities offered through NFP Securities, Inc. a Broker/Dealer and member NASD/SIPC. NFP Benefits is a division of NFP Insurance Services, Inc. a subsidiary of National Financial Partners Corp., the parent company of NFP Securities, Inc. Not all agents are licensed to offer securities through NFP Securities, Inc.
Why should my companyStart A Retirement Plan?<< >>
< < Retirement Income > >A retirement plan may help you bridge the gap between Social Security income and your total financial needs.
< < Tax Deductions > >Contributions to employee accounts are tax deductible from business income.
< < Tax Credits > >You may be able to claim a tax credit for part of the costs of starting and administering a SEP, SIMPLE, or qualified plan.
< < Attract Talent > >Retirement plans may assist in attracting new (and retaining valuable) employees.
RETIREMENT PL AN>> Small Business Retirement Solutions
“When Congress sweetened the tax breaks for retirement savings in 2001, some of the juiciest benefits went to the self-employed. If you work for yourself, by day or by moonlight, take a new
look at your retirement plan choices.”
--Forbes 12/09/2002
the rightChoosing
>>>>>Let us help you choose the retirement plan that
meets your needs.
SEP
SIMPLE
Indiv idual 401(k)
Qual if ied Plans
Prof it Sharing
Safe Harbor 401(k)
Def ined Benef it
>>>>>Neither NFP Benefits, NFP Insurance Services, Inc., or any subsidiaries of National Financial Partners Corp. offer legal or tax advice.
Please consult the appropriate professional regarding your individual circumstances.
Age Income Annual
Contribution
Owner 61 $250,000 $175,595 Employee A 39 $51,005 $4,547 Employee B 37 $32,160 $2,492 Employee C 46 $27,875 $4,255 Employee D 23 $45,881 $1,459
$12,753
$188,348
93%
$70,238
$980,012 Benefit commitment for Owner at retirement
Total Annual Contributions on behalf of Employees
Total Annual Contributions on behalf of Owner + Employees
Percentage of Total Annual Contribution for Owner
Estimated first year income tax savings for Owner
How doDefined Benefit Plans<< >>
work?A DB plan is a qualified retirement account that contractually agrees to pay a specific benefit at the plan holder’s retirement age.
< < Def ined Benef it Plan > >
< < Advantages of a DB Plan > >ACCUMULATION: Lifetime DB accumulation limit is approximately $2,000,000.
TAX DEDUCTIONS: Contributions to an Individual DB plan are a deductible business expense and offer the largest deductions available under current tax laws.
INVESTMENT OPTIONS: The investment committee has greater flexibility in making investment decisions.
ASSET PROTECTION: Plan assets are protected from creditors under current federal guidelines.
< < Disadvantages of a DB Plan > >RISK OF LOSS: The employer bears 100% of the investment risk and mandatory annual contributions are subject to market volatility.
ADMINISTRATIVE COST: DB plans require actuarial projections and administrative maintenance.
RESPONSIBILITIES: The employer is responsible for investment management, actuarial calculations, and annual contributions.
Current age of employees
Salary history
Planned retirement age
Length of employment
Investment performance
•
•
•
•
•
< < Case Study > >
>>>>>
Information based on tax regulations for 2007
< < Simpl if ied Employee Pension (SEP) Plan > >
You or the eligible employee establishes an individual SEP IRA at a financial institution. You contribute to each eligible employee’s account by sending the contribution to the financial institution where the SEP IRA is
maintained. The employee controls and owns the account and you determine the frequency and the amount of the contribution.
Which employers are eligible?
l Self-employed individuals
l C or S corporations
l Sole proprietorships
l Partnerships
Which employees are eligible?
l Have reached age 21
l Have worked for you for at least three of the last five years
l Have received at least $500 (minimum for 2007) in compensation from you
< < Advantages of a SEP > >CHOICE: Each year the employer chooses how much to contribute to employee accounts.
LOW COST: You are not required to file IRS Form 5500 if the document is distributed to employees, and the cost is minimal to set up and maintain.
CONTRIBUTIONS: You can contribute up to 25% of compensation or $45,000 in 2007, whichever is less.
< < Disadvantages of a SEP > >CONTRIBUTIONS: You must contribute the same % to each participant’s account as your own account.
CONTROL: The employee owns and controls the account.
>>>>>
How doSEPs<< >>
work?
Employer's contribution to his or her own account
Employee/Owner
Owner $225,000 $45,000
Employee A $45,000 $11,250
Employee B $35,000 $8,750
Employee C $25,000 $0
Total $65,000
($22,750)
($42,250)
$45,000
$2,750 *Employee C has only worked with the company for two years and owner decided to exclude.
Net cost or savings to employer
Cost to employer after tax deductions
Employer Contribution 25% Compensation
Subtract business tax deductions on total contributions (@ 35%)
Employer’s contribution to his or her own account
Information based on tax regulations for 2007
< < Case Study > >
Law firms
Medical practices
Venture capital firms
Engineering firms
Real estate developers
High-income entrepreneurs
•
•
•
•
•
•
These plans may be appropriate for:
Contributions are based on:
Tax Year 401(k) Under
Age 50 Age 50
2004 13,000 16,0002005 14,000 18,0002006 15,000 20,0002007 15,500 20,500
Employee Deferral Limits for Retirement Plans
401(k) Over
How doSafe Harbor 401(k) Plans
work?
elect to have the employer contribute part of their pre-tax compensation to the plan, rather than receive the compensation. A Safe Harbor 401(k) plan allows HCEs to maximize contributions as long as the employer makes minimum contributions to participant accounts and follows a specific set of rules.
< < Advantages of Safe Harbor > >SAVE MORE: Paid employees can defer up to $15,500 ($20,500 if age 50 or older).
NO TESTING: Safe Harbor 401(k) bypasses non-discrimination testing. ADP and ACP testing can prevent HCEs from deferring the maximum amount. Effective in 2002, Safe Harbor plans with matching contributions will not have to consider the top-heavy rules.
< < Safe Harbor 401 (k) Plan > >
Requirements:
l The Safe Harbor 401(k) option permits employers to choose between a matching option and a non-elective option
l The matching option: Requires the employer to match dollar for dollar on the first 3% of employee deferrals and 50 cents on the dollar for the next 2% of pay (4% match on 5% deferral)
l The non-elective option: Requires the employer to contribute 3% of compensation for all eligible employees regardless of whether employees make personal contributions
l All contributions must be 100% vested immediately
A profit-sharing plan can include a participant salary deferral arrangement, called a 401(k) plan. Under this plan, participants can
Information based on tax regulations for 2007
<< >>
Which employers are eligible?
You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you in the preceding year. Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. These plans may be appropriate for:
l Self-employed individuals
l C or S corporations
l Sole proprietorships
l Partnerships
Which employees are eligible?
l Have worked for you at least two years
l Have received at least $5,000 in compensation during any two years preceding the current year
l Are reasonably expected to receive at least $5,000 during the calendar year
l You can make less restrictive eligibility requirements but not more restrictive requirements
< < Advantages of a SIMPLE > >SIMPLICITY: There is no discrimination testing or IRS form 5500 reporting.
LOW COST: No setup fees or plan administration fees charged to the business owner.
VESTING: Employees are immediately 100% vested.
< < Disadvantages of a SIMPLE > >LIMITED: The inability to reach the $45,000 maximum annual qualified defined contribution limit.
EXCLUSIVE: Can’t be paired with other qualified plans; therefore; it must be the employer’s exclusive plan. Additionally, a SIMPLE doesn’t permit Social Security integration.
PENALTIES: High premature withdrawal penalty of 25% in first two years of participation.
< < Savings Incentive Match Plan > >
How doSavings Incentive Match Plans
work?(SIMPLE)
Under a SIMPLE plan, employees can choose to make contributions to the plan via payroll deductions, and employers make either matching or non-elective
contributions. Employers can establish a SIMPLE plan by funding SIMPLE IRAs for eligible employees.
<< >>
< < Prof it-Sharing Plan > >
How doProfit-Sharing Plans
work?A profit-sharing plan allows you to share your business profits with your employees. However, you do not have to make
NEW COMPARABILITY
Employees are grouped into categories. Different contribution formulas
apply to each category of employees in accordance with non-discrimination
regulations.
AGE-WEIGHTED
The contribution is allocated among employees based on
relative age and salary. This results in older, more
highly-compensated employees (HCEs)
receiving a greater portion of the contribution.
STANDARD FORMULA
The contribution is allocated
based on each employee’s
relative compensation.
INTEGRATED FORMULA
The contribution is allocated based on the Social Security taxable wage base. Employees earning more than this receive a greater portion
of the contribution to compensate for the smaller percentage of
Social Security benefits they accrue.
< < Advantages of Prof it Sharing > >HIGHER LIMITS: You (the employer) decide the amount you wish to contribute each year: up to 25% of total eligible compensation.
FLEXIBILITY: The amount of the profit-sharing contribution can change each year, although you do not have to make a contribution each year.
LOANS: Participant loans are permitted.
TAX SAVINGS: With a New Comparability plan, you could contribute generously to your own retirement savings while taking advantage of tax savings. New Comparability Plans may potentially be more powerful than a SEP or Simple IRA.
contributions out of net profits to have a profit-sharing plan. The plan must have a definite formula for allocating the contribution among the participants. This plan type has many variations, as shown below:
<< >>
Employee/Owner Compensation Deferral 2% Nonelective
Contribution Total 3% Matching Contribution Total
Owner $84,000 $10,500 $1,680 $12,180 $2,520 $13,020Employee A $36,000 $2,500 $720 $3,220 $1,080 $3,580 Employee B $31,000 $2,000 $620 $2,620 $930 $2,930 Employee C $29,000 $1,500 $580 $2,080 $870 $2,370 Employee D $27,000 $0 $540 $540 $0 $0 Employee E $24,000 $800 $480 $1,280 $720 $1,520 Employee F $12,000 $0 $240 $240 $0 $0 Total $17,300 $4,860 $22,160 $6,120 $23,420Total employer match contribution $4,860 $6,120 Subtract business tax deductions on total contributions (@ 35%) ($1,701) ($2,142) Cost to employer after tax deductions ($3,159) ($3,978) Employer's contribution to his or her own account $1,680 $2,520 Net cost or savings to employer ($1,479) ($1,458)
Information based on tax regulations for 2007
Information based on tax regulations for 2007
< < Employer Contribution Options > >EMPLOYER MATCHING CONTRIBUTION. With this option you are required to match each employee’s salary reduction contributions on a dollar for dollar basis up to 3% of the employee’s compensation. You can choose a lower percentage: If you choose a matching contribution less than 3%, the percentage must be at least 1%. You cannot choose a percentage less than 3% for more than two years during the five year period that ends with (and includes) the year for which the choice is effective.
NON-ELECTIVE CONTRIBUTIONS. Instead of matching contributions, you can choose to make non-elective contributions of 2% of compensation on behalf of eligible employees.
< < Employee Contribution Limits > >
< < Case Study > >
Tax Year Under Age 50 Over Age 50 2003 $8,000 $9,0002004 $9,000 $10,5002005 $10,000 $12,0002006 $10,000 $12,500
SIMPLE IRA SIMPLE IRA
2007 $10,500 $13,000
>>>>>
< < Qual if ied Plan > >
How doQualified Plans
work?Q ualified plan rules are more complex than SEP and SIMPLE plan rules. However, there are advantages to qualified plans, such as
more flexibility in plan design and increased contribution and deduction limits.
There are two basic kinds of qualified plans - defined contribution and defined benefit (DB) - with different rules applying to each. You can have more than one qualified plan, but your contributions to all the plans may not total more than the overall limits.
< < Def ined Contribution Plans > >A defined contribution plan provides an individual account for each participant in the plan. It provides benefits based on the amount contributed to a participant’s account. A defined contribution plan can be a profit sharing plan. Examples of defined contribution plans are:
l Profit-sharing
l 401(k)
l Safe Harbor 401(k)
< < DB Plans > >A target retirement benefit is set for each eligible employee in a DB plan, and the employer makes annual contributions that are calculated to provide that benefit. Upon retirement, the employee must be given the option to take distributions as an annuity. Contributions are based on:
l Current age (older employees need to contribute more)
l Average of three highest years of income
l Planned retirement age
l The accumulated balance
<< >>
Compensation Individual 401 (k) Simple IRA SEP IRA $225,000 45,000 17,250 45,000160,000 45,000 15,300 40,000125,000 45,000 14,250 31,250 118,000 45,000 14,040 29,500100,000 40,500 13,500 25,000 75,000 34,250 12,750 18,750 50,000 28,000 12,000 12,500 25,000 21,750 11,250 6,250 10,000 10,000 10,300 2,500
Information based on tax regulations for 2007
Information based on tax regulations for 2007
Age 52
$23,303$15,500$5,000
$43,803$13,296$2,500
$23,303$93,211
Maximum Profit Sharing Contribution Maximum 401(k) Contribution Maximum 401(k) Catchup Maximum Contribution Maximum SIMPLE IRA ContributionMaximum SIMPLE IRA Catchup
Maximum SEP ContributionMaximum DB Contribution
Business Type Earnings Name John Doe $93,211.13 Sole Proprietor
Maximum Contributions
$43,803
$15,796
$23,303
$93,211
$0
$20,000
$40,000
$60,000
$80,000
$100,000
401(k) SIMPLE SEP DB
< < Indiv idual 401(k) Plan > >
Why should you considerAn Individual 401(k)
TAX SAVINGS
Contributions are tax deductible
and earnings are tax deferred-
effectively reducing annual taxes your clients
must pay.
FLEXIBILITY
Salary deferrals and profit sharing are discretionary-
you are able to increase,
decrease or stop contributions at
will.
VESTING
You are 100% vested immediately.
ROLLOVERS
You can roll over 401(k), 457,
403b and pre-tax IRA monies into the solo 401(k).
LOANS
Loans are allowed for up to the
lesser of 50% of the plan balance
or $50,000.
LOW COST
Individual 401(k) accounts can be either self-service
or full service. The annual
administration and tax
preparation fees for a full service account averages
around $450.
< < Annual Contribution Limits > >
< < Case Study > >
<< >>
>>>>>
< < Qual if ied Plan > >
How doQualified Plans
work?Q ualified plan rules are more complex than SEP and SIMPLE plan rules. However, there are advantages to qualified plans, such as
more flexibility in plan design and increased contribution and deduction limits.
There are two basic kinds of qualified plans - defined contribution and defined benefit (DB) - with different rules applying to each. You can have more than one qualified plan, but your contributions to all the plans may not total more than the overall limits.
< < Def ined Contribution Plans > >A defined contribution plan provides an individual account for each participant in the plan. It provides benefits based on the amount contributed to a participant’s account. A defined contribution plan can be a profit sharing plan. Examples of defined contribution plans are:
l Profit-sharing
l 401(k)
l Safe Harbor 401(k)
< < DB Plans > >A target retirement benefit is set for each eligible employee in a DB plan, and the employer makes annual contributions that are calculated to provide that benefit. Upon retirement, the employee must be given the option to take distributions as an annuity. Contributions are based on:
l Current age (older employees need to contribute more)
l Average of three highest years of income
l Planned retirement age
l The accumulated balance
<< >>
Compensation Individual 401 (k) Simple IRA SEP IRA $225,000 45,000 17,250 45,000160,000 45,000 15,300 40,000125,000 45,000 14,250 31,250 118,000 45,000 14,040 29,500100,000 40,500 13,500 25,000 75,000 34,250 12,750 18,750 50,000 28,000 12,000 12,500 25,000 21,750 11,250 6,250 10,000 10,000 10,300 2,500
Information based on tax regulations for 2007
Information based on tax regulations for 2007
Age 52
$23,303$15,500$5,000
$43,803$13,296$2,500
$23,303$93,211
Maximum Profit Sharing Contribution Maximum 401(k) Contribution Maximum 401(k) Catchup Maximum Contribution Maximum SIMPLE IRA ContributionMaximum SIMPLE IRA Catchup
Maximum SEP ContributionMaximum DB Contribution
Business Type Earnings Name John Doe $93,211.13 Sole Proprietor
Maximum Contributions
$43,803
$15,796
$23,303
$93,211
$0
$20,000
$40,000
$60,000
$80,000
$100,000
401(k) SIMPLE SEP DB
< < Indiv idual 401(k) Plan > >
Why should you considerAn Individual 401(k)
TAX SAVINGS
Contributions are tax deductible
and earnings are tax deferred-
effectively reducing annual taxes your clients
must pay.
FLEXIBILITY
Salary deferrals and profit sharing are discretionary-
you are able to increase,
decrease or stop contributions at
will.
VESTING
You are 100% vested immediately.
ROLLOVERS
You can roll over 401(k), 457,
403b and pre-tax IRA monies into the solo 401(k).
LOANS
Loans are allowed for up to the
lesser of 50% of the plan balance
or $50,000.
LOW COST
Individual 401(k) accounts can be either self-service
or full service. The annual
administration and tax
preparation fees for a full service account averages
around $450.
< < Annual Contribution Limits > >
< < Case Study > >
<< >>
>>>>>
< < Prof it-Sharing Plan > >
How doProfit-Sharing Plans
work?A profit-sharing plan allows you to share your business profits with your employees. However, you do not have to make
NEW COMPARABILITY
Employees are grouped into categories. Different contribution formulas
apply to each category of employees in accordance with non-discrimination
regulations.
AGE-WEIGHTED
The contribution is allocated among employees based on
relative age and salary. This results in older, more
highly-compensated employees (HCEs)
receiving a greater portion of the contribution.
STANDARD FORMULA
The contribution is allocated
based on each employee’s
relative compensation.
INTEGRATED FORMULA
The contribution is allocated based on the Social Security taxable wage base. Employees earning more than this receive a greater portion
of the contribution to compensate for the smaller percentage of
Social Security benefits they accrue.
< < Advantages of Prof it Sharing > >HIGHER LIMITS: You (the employer) decide the amount you wish to contribute each year: up to 25% of total eligible compensation.
FLEXIBILITY: The amount of the profit-sharing contribution can change each year, although you do not have to make a contribution each year.
LOANS: Participant loans are permitted.
TAX SAVINGS: With a New Comparability plan, you could contribute generously to your own retirement savings while taking advantage of tax savings. New Comparability Plans may potentially be more powerful than a SEP or Simple IRA.
contributions out of net profits to have a profit-sharing plan. The plan must have a definite formula for allocating the contribution among the participants. This plan type has many variations, as shown below:
<< >>
Employee/Owner Compensation Deferral 2% Nonelective
Contribution Total 3% Matching Contribution Total
Owner $84,000 $10,500 $1,680 $12,180 $2,520 $13,020Employee A $36,000 $2,500 $720 $3,220 $1,080 $3,580 Employee B $31,000 $2,000 $620 $2,620 $930 $2,930 Employee C $29,000 $1,500 $580 $2,080 $870 $2,370 Employee D $27,000 $0 $540 $540 $0 $0 Employee E $24,000 $800 $480 $1,280 $720 $1,520 Employee F $12,000 $0 $240 $240 $0 $0 Total $17,300 $4,860 $22,160 $6,120 $23,420Total employer match contribution $4,860 $6,120 Subtract business tax deductions on total contributions (@ 35%) ($1,701) ($2,142) Cost to employer after tax deductions ($3,159) ($3,978) Employer's contribution to his or her own account $1,680 $2,520 Net cost or savings to employer ($1,479) ($1,458)
Information based on tax regulations for 2007
Information based on tax regulations for 2007
< < Employer Contribution Options > >EMPLOYER MATCHING CONTRIBUTION. With this option you are required to match each employee’s salary reduction contributions on a dollar for dollar basis up to 3% of the employee’s compensation. You can choose a lower percentage: If you choose a matching contribution less than 3%, the percentage must be at least 1%. You cannot choose a percentage less than 3% for more than two years during the five year period that ends with (and includes) the year for which the choice is effective.
NON-ELECTIVE CONTRIBUTIONS. Instead of matching contributions, you can choose to make non-elective contributions of 2% of compensation on behalf of eligible employees.
< < Employee Contribution Limits > >
< < Case Study > >
Tax Year Under Age 50 Over Age 50 2003 $8,000 $9,0002004 $9,000 $10,5002005 $10,000 $12,0002006 $10,000 $12,500
SIMPLE IRA SIMPLE IRA
2007 $10,500 $13,000
>>>>>
Tax Year 401(k) Under
Age 50 Age 50
2004 13,000 16,0002005 14,000 18,0002006 15,000 20,0002007 15,500 20,500
Employee Deferral Limits for Retirement Plans
401(k) Over
How doSafe Harbor 401(k) Plans
work?
elect to have the employer contribute part of their pre-tax compensation to the plan, rather than receive the compensation. A Safe Harbor 401(k) plan allows HCEs to maximize contributions as long as the employer makes minimum contributions to participant accounts and follows a specific set of rules.
< < Advantages of Safe Harbor > >SAVE MORE: Paid employees can defer up to $15,500 ($20,500 if age 50 or older).
NO TESTING: Safe Harbor 401(k) bypasses non-discrimination testing. ADP and ACP testing can prevent HCEs from deferring the maximum amount. Effective in 2002, Safe Harbor plans with matching contributions will not have to consider the top-heavy rules.
< < Safe Harbor 401 (k) Plan > >
Requirements:
l The Safe Harbor 401(k) option permits employers to choose between a matching option and a non-elective option
l The matching option: Requires the employer to match dollar for dollar on the first 3% of employee deferrals and 50 cents on the dollar for the next 2% of pay (4% match on 5% deferral)
l The non-elective option: Requires the employer to contribute 3% of compensation for all eligible employees regardless of whether employees make personal contributions
l All contributions must be 100% vested immediately
A profit-sharing plan can include a participant salary deferral arrangement, called a 401(k) plan. Under this plan, participants can
Information based on tax regulations for 2007
<< >>
Which employers are eligible?
You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you in the preceding year. Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. These plans may be appropriate for:
l Self-employed individuals
l C or S corporations
l Sole proprietorships
l Partnerships
Which employees are eligible?
l Have worked for you at least two years
l Have received at least $5,000 in compensation during any two years preceding the current year
l Are reasonably expected to receive at least $5,000 during the calendar year
l You can make less restrictive eligibility requirements but not more restrictive requirements
< < Advantages of a SIMPLE > >SIMPLICITY: There is no discrimination testing or IRS form 5500 reporting.
LOW COST: No setup fees or plan administration fees charged to the business owner.
VESTING: Employees are immediately 100% vested.
< < Disadvantages of a SIMPLE > >LIMITED: The inability to reach the $45,000 maximum annual qualified defined contribution limit.
EXCLUSIVE: Can’t be paired with other qualified plans; therefore; it must be the employer’s exclusive plan. Additionally, a SIMPLE doesn’t permit Social Security integration.
PENALTIES: High premature withdrawal penalty of 25% in first two years of participation.
< < Savings Incentive Match Plan > >
How doSavings Incentive Match Plans
work?(SIMPLE)
Under a SIMPLE plan, employees can choose to make contributions to the plan via payroll deductions, and employers make either matching or non-elective
contributions. Employers can establish a SIMPLE plan by funding SIMPLE IRAs for eligible employees.
<< >>
Age Income Annual
Contribution
Owner 61 $250,000 $175,595 Employee A 39 $51,005 $4,547 Employee B 37 $32,160 $2,492 Employee C 46 $27,875 $4,255 Employee D 23 $45,881 $1,459
$12,753
$188,348
93%
$70,238
$980,012 Benefit commitment for Owner at retirement
Total Annual Contributions on behalf of Employees
Total Annual Contributions on behalf of Owner + Employees
Percentage of Total Annual Contribution for Owner
Estimated first year income tax savings for Owner
How doDefined Benefit Plans<< >>
work?A DB plan is a qualified retirement account that contractually agrees to pay a specific benefit at the plan holder’s retirement age.
< < Def ined Benef it Plan > >
< < Advantages of a DB Plan > >ACCUMULATION: Lifetime DB accumulation limit is approximately $2,000,000.
TAX DEDUCTIONS: Contributions to an Individual DB plan are a deductible business expense and offer the largest deductions available under current tax laws.
INVESTMENT OPTIONS: The investment committee has greater flexibility in making investment decisions.
ASSET PROTECTION: Plan assets are protected from creditors under current federal guidelines.
< < Disadvantages of a DB Plan > >RISK OF LOSS: The employer bears 100% of the investment risk and mandatory annual contributions are subject to market volatility.
ADMINISTRATIVE COST: DB plans require actuarial projections and administrative maintenance.
RESPONSIBILITIES: The employer is responsible for investment management, actuarial calculations, and annual contributions.
Current age of employees
Salary history
Planned retirement age
Length of employment
Investment performance
•
•
•
•
•
< < Case Study > >
>>>>>
Information based on tax regulations for 2007
< < Simpl if ied Employee Pension (SEP) Plan > >
You or the eligible employee establishes an individual SEP IRA at a financial institution. You contribute to each eligible employee’s account by sending the contribution to the financial institution where the SEP IRA is
maintained. The employee controls and owns the account and you determine the frequency and the amount of the contribution.
Which employers are eligible?
l Self-employed individuals
l C or S corporations
l Sole proprietorships
l Partnerships
Which employees are eligible?
l Have reached age 21
l Have worked for you for at least three of the last five years
l Have received at least $500 (minimum for 2007) in compensation from you
< < Advantages of a SEP > >CHOICE: Each year the employer chooses how much to contribute to employee accounts.
LOW COST: You are not required to file IRS Form 5500 if the document is distributed to employees, and the cost is minimal to set up and maintain.
CONTRIBUTIONS: You can contribute up to 25% of compensation or $45,000 in 2007, whichever is less.
< < Disadvantages of a SEP > >CONTRIBUTIONS: You must contribute the same % to each participant’s account as your own account.
CONTROL: The employee owns and controls the account.
>>>>>
How doSEPs<< >>
work?
Employer's contribution to his or her own account
Employee/Owner
Owner $225,000 $45,000
Employee A $45,000 $11,250
Employee B $35,000 $8,750
Employee C $25,000 $0
Total $65,000
($22,750)
($42,250)
$45,000
$2,750 *Employee C has only worked with the company for two years and owner decided to exclude.
Net cost or savings to employer
Cost to employer after tax deductions
Employer Contribution 25% Compensation
Subtract business tax deductions on total contributions (@ 35%)
Employer’s contribution to his or her own account
Information based on tax regulations for 2007
< < Case Study > >
Law firms
Medical practices
Venture capital firms
Engineering firms
Real estate developers
High-income entrepreneurs
•
•
•
•
•
•
These plans may be appropriate for:
Contributions are based on:
Why should my companyStart A Retirement Plan?<< >>
< < Retirement Income > >A retirement plan may help you bridge the gap between Social Security income and your total financial needs.
< < Tax Deductions > >Contributions to employee accounts are tax deductible from business income.
< < Tax Credits > >You may be able to claim a tax credit for part of the costs of starting and administering a SEP, SIMPLE, or qualified plan.
< < Attract Talent > >Retirement plans may assist in attracting new (and retaining valuable) employees.
RETIREMENT PL AN>> Small Business Retirement Solutions
“When Congress sweetened the tax breaks for retirement savings in 2001, some of the juiciest benefits went to the self-employed. If you work for yourself, by day or by moonlight, take a new
look at your retirement plan choices.”
--Forbes 12/09/2002
the rightChoosing
>>>>>Let us help you choose the retirement plan that
meets your needs.
SEP
SIMPLE
Indiv idual 401(k)
Qual if ied Plans
Prof it Sharing
Safe Harbor 401(k)
Def ined Benef it
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