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Business Plan Cpa Presentation


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If you are a CPA looking for CE credits this is a free presentation I would be happy to hold at your firm.

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Business Plan Cpa Presentation

  1. 1. <ul><li>The New Appeal of Small Business Retirement Plans </li></ul>Justin J. Spraker Financial Advisor 9/12/2009 Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2006 - 2009 Ameriprise Financial, Inc. All rights reserved.
  2. 2. Lack of plan sponsorship <ul><li>Small businesses are important to the U.S. economy 1 : </li></ul><ul><ul><li>Represent 99.7% of all employers </li></ul></ul><ul><ul><li>Employ 50% of the private workforce </li></ul></ul><ul><ul><li>Create 65% or more of net new jobs added to the economy each year </li></ul></ul><ul><li>And yet — only 44% of small businesses (those with fewer than 100 employees) offer a retirement plan 2 </li></ul>1 “Ten Reasons to Love Small Business,” February 9, 2006, press release, Office of Advocacy, U.S. Small Business Administration 2 “National Compensation Survey: Employee Benefits in Private Industry in the United States,” U.S. Department of Labor, U.S. Bureau of Labor Statistics, March 2007.
  3. 3. Benefits of plan sponsorship <ul><li>For the business </li></ul><ul><ul><li>Potentially reduce taxes </li></ul></ul><ul><ul><li>Recruit and retain employees </li></ul></ul><ul><ul><li>Save for owner’s retirement </li></ul></ul><ul><li>For employees </li></ul><ul><ul><li>Tax-efficient way to save for retirement </li></ul></ul><ul><ul><li>Tax-deferred growth </li></ul></ul><ul><ul><li>Improved employee morale </li></ul></ul>
  4. 4. Today’s topics <ul><li>IRA-based plans </li></ul><ul><li>401(k) </li></ul><ul><li>Selecting a plan </li></ul>
  5. 5. <ul><li>IRA-based p lans </li></ul>
  6. 6. What is an IRA-based plan? <ul><li>SEP and SIMPLE — two types of IRA-based plans designed for small business owners </li></ul><ul><li>Contributions, employer and/or employee, are held in IRAs </li></ul><ul><li>IRAs are in the name of the participant </li></ul><ul><li>Participant controls his or her own IRA </li></ul>
  7. 7. Advantages of IRA-based plans Generally, longer eligibility requirements (SEPs) No fiduciary liability for investments Lower administrative costs No ERISA bonding requirements No special government reporting Portability & accessibility
  8. 8. SEP IRA features <ul><li>Flexible employer contributions </li></ul><ul><li>Contribution limit: Lesser of $49,000 (for 2009) or 25% of eligible compensation </li></ul><ul><li>Able to integrate with Social Security </li></ul><ul><li>Deductible contributions: Employer can deduct up to 25% of eligible compensation for contributions made to the plan </li></ul><ul><li>Deadline to establish coincides with the business’s tax-filing deadline including extensions </li></ul><ul><li>No government reporting </li></ul><ul><li>No plan loans </li></ul><ul><li>100% vesting </li></ul>
  9. 9. Employee SEP IRA eligibility <ul><li>Maximum requirements allowed </li></ul><ul><li>Age 21 or older </li></ul><ul><li>Employed three of the immediately preceding five years (year of service may be part time) </li></ul><ul><li>Earned at least $550 of compensation in the year of contribution </li></ul><ul><li>Employees covered under a collective bargaining agreement can be excluded </li></ul>
  10. 10. Structure of SEP IRA plan Employer’s SEP Plan Employee’s SEP IRA Employee’s SEP IRA Employer’s SEP IRA $$ $$ $$ Employer’s SEP Plan
  11. 11. SIMPLE IRA features <ul><li>Both employee and employer contributions </li></ul><ul><li>Flexibility to choose between matching </li></ul><ul><li>contributions or non-elective contributions </li></ul><ul><li>Low administration costs </li></ul><ul><ul><li>No non-discrimination testing </li></ul></ul><ul><ul><li>No top-heavy testing </li></ul></ul><ul><li>IRA-based advantages: limited fiduciary liability </li></ul><ul><li>Deadline to establish a SIMPLE IRA is October 1 </li></ul><ul><li>SIMPLE IRAs cannot be used in conjunction with any other employer-sponsored plan during the same year </li></ul>
  12. 12. SIMPLE IRA employee contributions <ul><li>Defer up to $11,500 for 2009 </li></ul><ul><li>Flexibility to determine how much to contribute each year </li></ul><ul><li>Catch-up contributions of $2,500 for 2009 (not aggregated with IRA catch-up contributions) for participants age 50 and older </li></ul>
  13. 13. SIMPLE IRA employee contributions <ul><li>Saver’s credit for contributions (if eligible) </li></ul><ul><li>Traditional IRA contributions are not eligible to be made to a SIMPLE IRA </li></ul><ul><li>Early withdrawal penalty is increased from 10% to 25% on distributions taken within two years of beginning participation </li></ul>
  14. 14. SIMPLE IRA employer contributions <ul><li>Employers can choose between two methods for </li></ul><ul><li>making employer contributions to the plan: </li></ul><ul><li>Method 1 Match 100% of the first 3% of compensation (can be lowered to 1% in two out of five years) </li></ul><ul><li>Method 2 2% non-elective contribution to all eligible employees </li></ul>
  15. 15. Structure of SIMPLE IRA plan Employee’s SIMPLE IRA Employee’s SIMPLE IRA Employer’s SIMPLE IRA Employer’s SIMPLE Plan Employees’ salary deferrals Employer’s match or non-elective contribution $ $ $ $ $ $
  16. 16. SIMPLE/SEP comparison <ul><li>Annual income: Andrew = $50,000 </li></ul><ul><li>3 Employees @ $20,000 each ($60,000 total) </li></ul><ul><ul><li>Andrew’s contribution to himself: $8,500: 17% of compensation </li></ul></ul><ul><ul><li>Andrew’s contribution to employees: $1,800: 3% of compensation </li></ul></ul>This hypothetical example is provided for illustrative purposes only. SIMPLE IRA Employee Deferral Match Total Contribution % of Income Andrew $7,000 (14%) $1,500 (3% of $50,000) $8,500 17% Employees $2,400 (4%) $1,800 (3% of $60,000) $4,200 7%
  17. 17. SIMPLE/SEP comparison <ul><li>Annual income: Andrew = $50,000 </li></ul><ul><li>3 Employees @ $20,000 each ($60,000 total) </li></ul><ul><ul><li>Andrew’s allocation: $8,500 (17% of income) </li></ul></ul><ul><ul><li>Andrew’s contribution to employees: $10,200 (17% of compensation) </li></ul></ul>This hypothetical example is provided for illustrative purposes only. SEP IRA Income Contribution Rate Contribution Amount Andrew $50,000 17% $8,500 Employees $60,000 17% $10,200
  18. 18. SIMPLE/SEP comparison <ul><li>Andrew’s contribution to employees: </li></ul><ul><ul><li>SEP: $10,200 </li></ul></ul><ul><ul><li>SIMPLE: $1,800 </li></ul></ul><ul><ul><li>Difference: $8,400 </li></ul></ul><ul><li>Which plan would you choose? </li></ul>This hypothetical example is provided for illustrative purposes only.
  19. 19. IRA custodian <ul><li>Know your client’s custodial agreement </li></ul><ul><li>Each custodian sets their own custodian rules and procedures within IRS guidelines </li></ul><ul><li>Be sure you understand the custodial agreement defaults and limitations </li></ul><ul><li>Be sure your clients: </li></ul><ul><ul><li>Always name a designated beneficiary for all IRA assets </li></ul></ul><ul><ul><li>Regularly review beneficiaries to verify they still meet their goals </li></ul></ul>
  20. 20. <ul><li>401(k) </li></ul>
  21. 21. Advantages <ul><li>Non-IRA based </li></ul><ul><li>Assets held by the plan’s trust </li></ul><ul><li>Participants typically have the ability to direct the investment of their plan assets, choosing from the plan’s investment options </li></ul><ul><li>IRS reporting required </li></ul>
  22. 22. 401(k) advantages <ul><li>Two funding components: </li></ul><ul><ul><li>Salary-deferral contribution: from $0 up to $16,500 for 2009 </li></ul></ul><ul><ul><li>Discretionary profit-sharing contribution: from 0% up to 25% of eligible compensation </li></ul></ul><ul><li>Aggregate limit: 100% of compensation up to $49,000 (for 2009) </li></ul><ul><li>Additional salary deferral catch-up contribution of $5,500 for those age 50 or older (for 2009) </li></ul><ul><li>Loans </li></ul><ul><li>Vesting </li></ul><ul><li>Designated Roth 401(k) deferrals </li></ul>
  23. 23. Disadvantages <ul><li>Administrative costs </li></ul><ul><ul><li>Non discrimination testing </li></ul></ul><ul><ul><li>Record keeping </li></ul></ul><ul><ul><li>Governmental reporting </li></ul></ul><ul><li>Increased fiduciary liability for investment selection </li></ul><ul><li>Shorter eligibility requirements compared to SEP </li></ul><ul><ul><li>1-year: if a vesting schedule is used </li></ul></ul><ul><ul><li>2-years: if 100% vested </li></ul></ul>
  24. 24. Individual 401(k) <ul><li>401(k) used by business owner — with no employees </li></ul><ul><li>Opportunity to maximize contributions: Deferrals + Employer contributions </li></ul><ul><li>No non discrimination testing </li></ul><ul><li>No governmental reporting until the plan exceeds $250,000 </li></ul><ul><li>Roth 401(k) deferrals available </li></ul>
  25. 25. Individual 401(k) example <ul><li>Individual 401(k) </li></ul><ul><ul><li>Employee deferrals: $16,500 </li></ul></ul><ul><ul><li>25% employer contribution: $25,000 </li></ul></ul><ul><ul><li>Total contribution: $41,500 (41.5%) </li></ul></ul><ul><li>SEP: $25,000 (25% of eligible compensation) </li></ul><ul><li>SIMPLE </li></ul><ul><ul><li>Employee deferrals: $11,500 </li></ul></ul><ul><ul><li>3% employer matching contribution: $3,000 </li></ul></ul><ul><ul><li>Total contributions: $14,500 (14.5%) </li></ul></ul>This hypothetical example is provided for illustrative purposes only. Assume Business owner (under age 50), set up as a corporation, with $100,000 form W-2 compensation
  26. 26. <ul><li>Selecting a plan </li></ul>
  27. 27. Which plan fits your client’s needs? <ul><li>Compare: </li></ul><ul><ul><li>Contribution and deduction limits </li></ul></ul><ul><ul><li>Establishment deadlines </li></ul></ul><ul><ul><li>Eligibility features </li></ul></ul><ul><li>Key features and benefits </li></ul>
  28. 28. Next steps <ul><li>Review your current book of small business owners and determine: </li></ul><ul><ul><li>Need or desire for a retirement plan </li></ul></ul><ul><ul><li>For those with existing plans, particularly money-purchase pension plans, determine how recent tax law changes may have impacted them </li></ul></ul><ul><ul><li>Is your client’s current plan meeting their needs? </li></ul></ul><ul><ul><li>Set up a meeting to review </li></ul></ul>
  29. 29. Small business resources <ul><li>Ameriprise Financial offers: </li></ul><ul><li>Plan selection assistance </li></ul><ul><li>Comprehensive resources </li></ul><ul><ul><li>Plan comparison guides </li></ul></ul><ul><ul><li>Retirement plan implementation materials </li></ul></ul><ul><ul><li>Participant savings guides </li></ul></ul><ul><ul><li>Enrollment presentations </li></ul></ul><ul><li>Local financial advisor to provide personalized support </li></ul>
  30. 30. next steps
  31. 31. Let’s get started. Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 1998-2009 Ameriprise Financial, Inc. All rights reserved. Justin J. Spraker, Financial Advisor Ameriprise Financial Advisors 5 Southside Drive Ste 202 Clifton Park, NY 12065 (518) 669-3440 [email_address]