Posts tagged "Plans"

SEP IRAs: Useful Savings Plans for the Smallest Businesses | The Retirement Group: Your Partners In Retirement

SEP IRAs: Useful Savings Plans for the Smallest Businesses | The Retirement Group: Your Partners In Retirement

These are the views of Peter Montoya Inc., not John Jastremski nor QA3 Financial, and should not be construed as investment advice. Neither John Jastremski nor QA3 Financial gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Do you own a small business with a few employees? Are you self-employed? In either case, the SEP IRA may be the ideal low-cost, easily administered retirement savings plan for you.

This is a simple pension plan using a traditional IRA. (SEP stands for Simplified Employee Pension.) It lets you put aside money into individual IRAs for you and your employees, with lower administrative fees and less paperwork than other types of retirement plans.1

Tax-deferred compounding of pre-tax dollars. You contribute pre-tax dollars to a SEP IRA, and that has the effect of lowering your tax bill. The money in the IRA grows tax-deferred, and your business doesn’t pay any taxes on the IRA earnings.1 The assets can be invested in many ways.

The traditional IRA rules apply. When you take the money out of a SEP IRA for retirement, you pay ordinary income taxes on it. (Should you withdraw SEP IRA assets before age 59½, you’ll likely be assessed a penalty, with some exceptions.)2

Contributions are discretionary. Each year, you can contribute or not contribute to the IRA(s) involved. The amount you put into the IRA(s) can also vary.1

In 2009, you can contribute up to 25% of an eligible employee’s compensation, up to a limit of ,000. No catch-up contributions are permitted for older employees.3

A three-point employee eligibility test. Generally, employees of a small business are eligible for a SEP IRA if they 1) are older than 21, 2) have worked for the business in at least three of the five years preceding the year in which the IRA contribution is made, 3) have received 0 or more in compensation from the business in 2009 (this can rise with COLA adjustments in future years). However, the IRS states that an employer “may use less restrictive requirements to determine an eligible employee.”3

Employees covered by a union contract may be excluded from a SEP, as well as non-resident aliens who have not earned income from your business.3

All eligible employees must participate in the SEP – including part-time and seasonal workers and employees who die, quit, or get laid off or fired during the year.1

Are you self-employed? Assuming your business is unincorporated, you can contribute up to 20% of your net adjusted self-employment income to a SEP each year. If you have a bad year, you have the option of skipping your SEP contribution, and no penalty will come your way if you do.4

Starting up a SEP IRA is easy. You can open up one of these plans with the help of almost any financial advisor or financial institution. In fact, you can even have other retirement plans at your business in addition to SEP IRAs, and you can set up a SEP IRA for your small business even if you are already participate in another retirement plan at another company.3

Sole proprietors, partnerships, and corporations can all create SEPs. In fact, they may qualify for annual tax credits of up to 0 during the plan’s first three years, which can be applied toward the plan’s start-up costs.1 So if you have a small business or work on your own and you want a retirement plan that works for your future without a lot of hassles, talk to a financial advisor to see if a SEP IRA is right for you.

Citations.

1 dol.gov/ebsa/publications/SEPPlans.html           [2/20/09]

2 investopedia.com/university/retirementplans/sepira/sepira3.asp    [2/20/09]

3 irs.gov/retirement/article/0,,id=111419,00.html    [10/23/08]

4 publicradio.org/columns/marketplace/gettingpersonal/2008/09/_question_i_understand_that_1.html                [9/29/08]

This does not constitute an endorsement by John Jastremski, The Retirement Group or the author of the book. The opinions expressed are solely those of the author and may or may not be a representative opinion of The Retirement Group or John Jastremski. John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese Philip Catalan, Brent Wolf, Andy Starostecki, The Retirement Group, AT&T, Verizon

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Individual Retirement Plans Guide CCH IRA SEP KEOGH

Individual Retirement Plans Guide CCH IRA SEP KEOGH

With the first wave of the Baby Boom Generation entering their retirement years and recent legislation creating new opportunities and challenges for anyone thinking about investing in retirement benefit vehicles, an up-to-date grasp of IRA laws and regulations is at the heart of any financial planning process. Whether youre an attorney, CPA, IRA administrator, bank officer or financial planner, the CCH Individual Retirement Plans Guide provides the comprehensive information and customized tools youll need to put together solid plans for the future. Subscribe today to:

Obtain complete background on the most popular retirement benefit vehicles
Compare IRAs, SEPs, SIMPLEs and Keogh Plans to help your clients plan for the future
See how Coverdell savings accounts (formerly called education IRAs) and health savings accounts can add new savings opportunities
Access full-text government publications and issuances for in-depth research
Receive forms and sample plans for modeling, administration and reporting for all major plan types.

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Protecting Assets from Creditors: Asset Protection for Retirement Plans

Protecting Assets from Creditors: Asset Protection for Retirement Plans

Protecting Assets from Creditors: New Bankruptcy Legislation for Retirement Plans

New legislation now adds protection to retirement plans. The Bankruptcy Abuse Prevention and Consumer Protection Act clarifies debtor rights and expands the protection offered to cover retirement assets during a federal bankruptcy proceeding. While this act clears things up as far as federal cases, things are still unclear in regards to state proceedings. The new law will help answer the question, “can and IRA be taken in a lawsuit?” and protect all retirement funds that are tax-exempt, including IRC sections 403(b), 401(k) and 457(b).

If an IRA was created under an employer-sponsored IRC section 408, it is excluded from any federal bankruptcy case. In addition to the IRA, pensions, 401(k) funds that have been transferred to a rollover IRA account and profit-sharing are all excluded. The new Bankruptcy Code also excluded Traditional and Roth IRAs. These types of IRA accounts are subject to an exclusion limit of million. This limit also applies to a rollover from a SIMPLE IRA or SEP into a Traditional or Roth. To avoid any confusion if there is ever a federal bankruptcy proceeding, take caution when rolling over any retirement savings. Always be sure that the rollover IRA is not connected to any other IRA account that the debtor owns.

Other Forms of Protection Outside of Federal Bankruptcy

This new act does not address any retirement funds that are involved in state law attachment or garnishing proceedings. Retirement funds can be attached outside of a bankruptcy. It is very important to know the differences between retirement plans. This will help you understand if the plan is protected under the new legislation.

Asset Protection for SEP and SIMPLE IRAs

These retirement plans are treated a bit differently than a Traditional and Roth IRA. The Labor Department and the Federal Court of Appeals have ruled that Sep and SIMPLE IRAs are ERISA pension plans. This is because these plans are arranged by an employer. Most ERISA pension plans are unable to be touched by creditors, thus it is obvious what’s better, 401k or Roth IRA, in lawsuit issues, a company-sponsored 401K is safer. Despite SEP and SIMPLE IRAs being considered ERISA pension plans, these retirement plans are not protected. This means that outside of bankruptcy, these plans are at an impasse. They do not qualify for the protection that ERISA plans receive, even though they are categorized as ERISA plans.

Asset Protection for Traditional and Roth IRAs

If a traditional or Roth IRA is established by an individual, it is not considered an ERISA plan. This means that there are state laws which can protect them. Not every state will protect an IRA. It is advised that you check to find out what asset protection is offered by your state and how an IRA falls into that protection plan. Keep in mind that if you rollover any money from an employer-sponsored plan into an individual IRA plan, those funds are no longer considered to be ERISA and are not protected. This may seem confusing since the funds were protected when in the original retirement plan. However, when you roll the funds over to another IRA plan that was established by yourself, that plan is not protected.

Before making any decisions regarding rollovers or transfers, always check to see if your state protects IRA plans. If they do, then your assets will be safe no matter what. If the state does not protect such plans, you are at risk of losing the assets in a lawsuit.

Asset Protection for Owner-Only Plans

Any plan that is classified as ERISA will be protected inside or outside of a bankruptcy proceeding. However, if a retirement plan benefits only the owner of the plan and their spouse, it is not considered to be an ERISA plan and it will not qualify for protection. In a bankruptcy proceeding, owner-only plans are not at risk. If there is no bankruptcy proceeding, the plan will still be protected if non-owner participants are added to the retirement plan. This means that if you add other participants, the plan is no longer owner-only and it will be protected. This is one of the best ways to protect any owner-only retirement plan.

Current Laws in Asset Protection

Under the new legislation, all retirement plans and IRAs are protected in a bankruptcy proceeding. Outside of bankruptcy, some plans may be protected by ERISA. These plans must be qualified to receive protection and are usually pensions, profit-sharing and 401(k) plans. Some state laws are in place that will protect other retirement accounts, such as Traditional and Roth IRAs. If you have a SEP, SIMPLE IRA or an owner-only plan, additional planning may be needed to protect these retirement plans. They do not qualify for any state protection.

It is very important to take the steps needed to assure that your retirement plans are protected. These accounts usually hold many assets in them and they are often targeted by creditors. Make sure your retirement plans are protected outside of bankruptcy, especially if they do not qualify for ERISA protection.

Difference Between Retirement Plans

Difference Between Retirement Plans

It is important to make good choices when it comes to saving for your retirement. Having a Financial Planner or Accountant review your current portfolio and your goals for the future is the first thing you should do; as they can help you determine investment vehicles that align with your risk tolerance and savings objectives.

But where do you start? Which retirement plans should you focus on? What are the differences between the various retirement plans out there?

Many Advisors would agree; that if the company you work for offers a 401(k) plan, a pension plan or a 403(b), you should take advantage of the opportunity to enroll. Typically, employers make monetary contributions towards these plans and the internal fees associated with these types of accounts are usually lower than with individual retirement plans. Because of these features, over time, it benefits you two-fold to put your money into them.

Though investing in an employer-sponsored plan has its advantages, it has some disadvantages as well. The investment options you have are usually very limited. And more often than not, you are required to name a spouse or child as your beneficiary. This being said, it is still an excellent way to save and acquire for retirement, it just shouldn’t be your only investment vehicle.

With the current trends of changing careers every 5 to 10 years, many of us will need to roll our 401(k)’s long before we actually plan to retire. Transferring or “rolling” your employer-sponsored retirement plan to a self-managed IRA may be the best option for you. Keep in mind that some companies will automatically cash out your retirement plan if the balance is under a certain amount. If this happens, they will be required to hold back 20% for taxes, and you may get hit with a 10% penalty for withdrawing the cash before 59 ½ years old. Though generally, your former employer would simply perform a direct transfer (called trustee-to-trustee exchange) to your IRA, incurring no penalties or tax ramifications.

A major benefit to IRA’s (individual retirement account) is the tax break. Contributions to an IRA reduce the income you need to pay taxes on at the end of the year. At the same time you receive this tax break, your money is also growing tax-deferred. (Meaning you do not have to pay taxes on the growth as long as the money is not being withdrawn.)

There are technically five (5) types of IRA’s: Traditional IRA, Educational IRA, SEP IRA (simplified employee pension), Simple IRA and Roth IRA.

A Traditional IRA grows tax-deferred, meaning you do not pay taxes on any of the money growing within your account. Because you are funding your IRA with money that has already been taxed, you will only pay taxes on your investment gains as you take withdrawals. Some, who qualify, may even be able to deduct their IRA contributions.

A ROTH IRA is different from a Traditional IRA in that your contributions grow tax-free. Meaning, you do not have to pay tax on your investment gains even when taking them in the form of withdrawals. Your contributions are also not deductible. If you choose a ROTH IRA, you must first open a traditional IRA, and then roll those monies into the ROTH account.

College professors and teachers have a special retirement plan or pension called a 403(b). This plan is not tied to their specific employer and can move with them as they transfer from school to school. If you’re vested (meaning you have the right to keep all the money in the account) and change schools or even careers, the amount in your 403(b) plan continues to grow tax-deferred.

If your retirement plan/pension includes stock options (ability to purchase shares of company stock), or if your employer gives shares of stock to your plan, you can keep them as the shares will be in your name. You can also sell the shares of stock for the going market rate. You have two choices should you decide to keep your shares of stock: you can continue to use your former employer as your housing agent, or you can roll the stocks into an IRA that you have opened with a brokerage firm.

There are many choices and options for your retirement investing. In addition to the research and articles you will read on your own, it is still always prudent to sit with a Financial Planner or Accountant to thoroughly review and assess your current financial situation, to determine where you are now, and how to achieve your financial goals in the future.

*** This article is intended for informational purposes only, and should not replace discussing your individual needs with your local Insurance Agent or Financial Representative.

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Overview of Government-Regulated Retirement Savings Plans

Overview of Government-Regulated Retirement Savings Plans

Over the years, the government has allowed a variety of tax-advantaged savings plans to come into existence so you can save for your retirement. This article overviews the types of plans you can choose from as an employee or as a business owner.

All these plans require you to contribute to them from working income. The main tax advantage offered by these plans is untaxed growth of their earnings. This increases their compounding rate compared to ‘taxable’ investments that lose part of their earning to taxes; so hopefully they’ll grow faster. But there are other tax-advantages that depend on the plan type you choose.

Whatever the tax-advantages are, you’re penalized from withdrawing your money from these plans before turning 591/2 in keeping with the government’s incentive for you to save for retirement. There are some exceptions to this but that’s not the concern here.

The questions you need to answer are:

* What are the advantages and disadvantages of each plan?

* What do I have to do to participate in the plan?

* How much can I contribute?

To sift out these answers, I’ll characterize and discuss the plans as:

* Before-tax vs after- tax contribution plans

* Defined benefit vs defined contribution plans

* Personal (non-company) plans

* Employee plans

* Self-employed plans

So, to begin: *Before-tax vs after-tax contribution plans:

Before-tax contribution plans allow you to make tax-deductible contributions from your working income. These contributions will grow tax-deferred. When you eventually make withdrawals from your plan, you’ll pay income tax on everything you withdraw. After you turn 701/2 you’re obligated to make required minimum distributions (RMDs) from the plan.

Tax-deductible contribution plans help you to contribute more to your plan. You’ll also get a break if your tax bracket for withdrawals is lower than when you contributed.

After-tax contribution plans are referred to a ‘Roth’ plans. You can only contribute with after-tax working income, so it’s harder to contribute to them. But earnings grow truly tax free (not just tax-deferred) and your withdrawals are tax free, too. No RMDs are due if you keep – or transfer- your plan money into your own Roth IRA.

*Defined benefit vs defined contribution plans:

The traditional company pension is on the wane. It guaranteed you a specific monthly pension payout – taxable as income – based on your last years’ salaries and the number of years you worked for the company. That’s a ‘defined’ benefit. Tax-deductible contributions were made to your pension only by your company and in an amount necessary to guarantee the defined benefit. If you’re self-employed, you can set up a Keogh plan which is a defined benefit plan for yourself. Since your contributing to achieve a guaranteed ‘pension’ income, you’re allowed to make rather high tax-deductible annual contributions to the plan. You can save a lot this way in relatively few years – but you have to have a high business income to do so. Defined contribution plans limit the contribution you can make to your plan each year. And what you eventually accumulate in your plan depends on both the amount you contributed and its investment performance. Nothing’s guaranteed. Poor investment results can leave you with nothing.

Let’s see the company and noncompany plans to participate in. Company plans can offer employees matching contributions and sometimes profit sharings plans. You can participate in a company plan as well as personal individual retirement account (IRA) (noncompany) plan, unless your income is too high for you to contribute to your own IRA.

Personal IRA plans are:

* Traditional IRA (a defined, before-tax contribution plan)

* Roth IRA (a defined, after-tax contribution plan)

The 2010 contribution limit is ,000 (,000 if you’re over 50).

Typical employee plans are:

* 401(k) (a defined, before-tax contribution plan)

* 403(b) (a defined, before-tax contribution plan)

* 457 (a defined, before-tax contribution plan)

* ‘Roth’ Versions (after-tax contribution) of these.

The 2010 contribution limit is ,500 (,000 if you’re over 50)

Especially advantageous about such plans is that your company may match your contribution into your plan at least to some percentage of your income.

Self-employed owner plans with or without employees are (2010 limits):

* SEP (or SEP IRA) – (profit sharing plan) contribute lesser of ,000 or 20% of self-employment income.

* SIMPLE (or SIMPLE IRA OR SIMPLE 401(K)) (defined tax-deductible contribution, profit sharing) contribute to ,500 (,000 if over 50)

* Sole 401(k) (defined, tax-deductible and profit sharing plan) contribute lesser of ,000 or 20% of self-employment income, and up to ,000 (,000 if over 50) of contribution)

* Keogh (Defined benefit plan/before-tax contribution) lesser of 5,000 or 100% of 3-yr average compensation)

Of course you need the business income to support the contributions. That’s the hard part.

Now you can choose what’s best for you.

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