Alert! Social Security is not enough to live on by itself. Monthly Social Security payments account for 25-30% of a person's total income in retirement. It was never intended to be the only source of income. there is an old saying "if it is meant to be, it is up to me". Saving for one's retirement is not a nice to do, but it is a MUST DO! If you have any further questions on which retirement plan might be best for you to set up, just give me a call to discuss.
1. Dolf Dunn Wealth Management, LLC
Dolf Dunn, CPA/PFS,CFP®,CPWA®,CDFA
Private Wealth Manager
11330 Vanstory Drive
Suite 101
Huntersville, NC 28078
704-897-0482
dolf@dolfdunn.com
www.dolfdunn.com
Retirement Plans for Small Businesses
If you're self-employed or own a small business and • To maximize the amount you can save for your
you haven't established a retirement savings plan, own retirement?
what are you waiting for? A retirement plan can help • A plan funded by employer contributions? By
you and your employees save for the future. And employee contributions? Both?
you'll be in good company--over 1 million small
businesses with 100 or fewer employees currently • A plan that allows you and your employees to
offer workplace retirement savings plans. make pretax and/or Roth contributions?
• The flexibility to skip employer contributions in
Tax advantages some years?
A retirement plan can have significant tax • A plan with lowest costs? Easiest administration?
advantages:
The answers to these questions can help guide you
• Your contributions are deductible when made and your retirement professional to the plan (or
• Your contributions aren't taxed to an employee combination of plans) most appropriate for you.
until distributed from the plan SEPs
• Money in the retirement program grows tax
deferred (or, in the case of Roth accounts, A SEP allows you to set up an IRA (a "SEP-IRA") for
In general, the amount of potentially tax free) yourself and each of your eligible employees. You
employee compensation contribute a uniform percentage of pay for each
that can be taken into Types of plans employee, although you don't have to make
account when contributions every year, offering you some flexibility
determining employer Retirement plans are usually either IRA-based (like
when business conditions vary. For 2012, your
and employee SEPs and SIMPLE IRAs) or "qualified" (like 401(k)s,
contributions is limited to
contributions for each employee are limited to the
profit-sharing plans, and defined benefit plans).
$250,000 in 2012. lesser of 25% of pay or $50,000. Most employers,
Qualified plans are generally more complicated and
including those who are self-employed, can establish
expensive to maintain than IRA-based plans because
a SEP.
they have to comply with specific Internal Revenue
Code and ERISA (the Employee Retirement Income SEPs have low start-up and operating costs and can
Security Act of 1974) requirements in order to qualify be established using an easy two-page form. The
for their tax benefits. Also, qualified plan assets must plan must cover any employee aged 21 or older who
be held either in trust or by an insurance company. has worked for you for three of the last five years and
With IRA-based plans, your employees own (i.e., who earns $550 or more.
"vest" in) your contributions immediately. With
qualified plans, you can generally require that your
SIMPLE IRA plan
employees work a certain numbers of years before The SIMPLE IRA plan is available if you have 100 or
they vest. fewer employees. Employees can elect to make
pretax contributions in 2012 of up to $11,500
Which plan is right for you? ($14,000 if age 50 or older). You must either match
With a dizzying array of retirement plans to choose your employees' contributions dollar for dollar--up to
from, each with unique advantages and 3% of each employee's compensation--or make a
disadvantages, you'll need to clearly define your goals fixed contribution of 2% of compensation for each
before attempting to choose a plan. For example, do eligible employee. (The 3% match can be reduced to
you want: 1% in any two of five years.) Each employee who
earned $5,000 or more in any two prior years, and
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2. who is expected to earn at least $5,000 in the current contributions, but you can require two years of service
year, must be allowed to participate in the plan. if your contributions are immediately vested.
SIMPLE IRA plans are easy to set up. You fill out a 401(k) plans are required to perform somewhat
short form to establish a plan and ensure that complicated testing each year to make sure benefits
SIMPLE IRAs are set up for each employee. A aren't disproportionately weighted toward higher paid
financial institution can do much of the paperwork. employees. However, you don't have to perform
Additionally, administrative costs are low. discrimination testing if you adopt a "safe harbor"
401(k) plan. With a safe harbor 401(k) plan, you
Profit-sharing plan generally have to either match your employees'
contributions (100% of employee deferrals up to 3%
Typically, only you, not your employees, contribute to
of compensation, and 50% of deferrals between 3
a qualified profit-sharing plan. Your contributions are
and 5% of compensation), or make a fixed
discretionary--there's usually no set amount you need
contribution of 3% of compensation for all eligible
to contribute each year, and you have the flexibility to
employees, regardless of whether they contribute to
contribute nothing at all in a given year if you so
the plan. Your contributions must be fully vested.
choose (although your contributions must be
nondiscriminatory, and "substantial and recurring," for Another way to avoid discrimination testing is by
your plan to remain qualified). The plan must contain adopting a SIMPLE 401(k) plan. These plans are
a formula for determining how your contributions are similar to SIMPLE IRAs, but can also allow loans and
allocated among plan participants. A separate Roth contributions. Because they're still qualified
account is established for each participant that holds plans (and therefore more complicated than SIMPLE
your contributions and any investment gains or IRAs), and allow less deferrals than traditional
losses. Generally, each employee with a year of 401(k)s, SIMPLE 401(k)s haven't become popular.
service is eligible to participate (although you can
require two years of service if your contributions are
Defined benefit plan
immediately vested). Contributions for any employee A defined benefit plan is a qualified retirement plan
in 2012 can't exceed the lesser of $50,000 or 100% of that guarantees your employees a specified level of
the employee's compensation. benefits at retirement (for example, an annual benefit
equal to 30% of final average pay). As the name
401(k) plan suggests, it's the retirement benefit that's defined, not
The 401(k) plan (technically, a qualified profit-sharing the level of contributions to the plan. In 2012, a
plan with a cash or deferred feature) has become a defined benefit plan can provide an annual benefit of
hugely popular retirement savings vehicle for small up to $200,000 (or 100% of pay if less). The services
businesses. According to the Department of Labor, an of an actuary are generally needed to determine the
estimated 60 million American workers are enrolled in annual contributions that you must make to the plan
401(k) plans with total assets of about 3 trillion to fund the promised benefit. Your contributions may
dollars. With a 401(k) plan, employees can make vary from year to year, depending on the performance
pretax and/or Roth contributions in 2012 of up to of plan investments and other factors.
$17,000 of pay ($22,500 if age 50 or older). These In general, defined benefit plans are too costly and
deferrals go into a separate account for each too complex for most small businesses. However,
employee and aren't taxed until distributed. Generally, because they can provide the largest benefit of any
each employee with a year of service must be retirement plan, and therefore allow the largest
allowed to contribute to the plan. deductible employer contribution, defined benefit
You can also make employer contributions to your plans can be attractive to businesses that have a
401(k) plan--either matching contributions or small group of highly compensated owners who are
discretionary profit-sharing contributions. Combined seeking to contribute as much money as possible on
employer and employee contributions for any a tax-deferred basis.
employee in 2012 can't exceed the lesser of $50,000 As an employer, you have an important role to play in
(plus catch-up contributions of up to $5,500 if your helping America's workers save. Now is the time to
employee is age 50 or older) or 100% of the look into retirement plan programs for you and your
employee's compensation. In general, each employee employees.
with a year of service is eligible to receive employer
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any
individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance
referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a
qualified tax advisor.
Securities offered through LPL Financial, Member FINRA/SIPC
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012