Monetary Focus: Selecting a Retirement Plan That Match Your Enterprise Information

A survey found that 79 percent of small business owners expect at least some of their retirement income to come from tax-privileged retirement accounts (according to Gallop, March 16, 2017). If you have not yet developed a retirement plan for your company, or if you are unsure whether the plan you have chosen is the right one, here are some things to keep in mind.

How much can my company afford to contribute?

The cost of the contributions can be managed according to the type of plan.

A simplified employee pension plan (SEP) is funded only by employer contributions. SEP contributions are made to separate IRAs for eligible employees. Please note that, like a traditional IRA, withdrawals from a SEP IRA are taxed as ordinary income. and if taken before the age of 59, a 10 percent federal income tax penalty may be imposed. Under the SECURE Act, in most cases, you must start making the minimum payouts required by the age of 72.

Small Employee Savings Incentive Match Plan (SIMPLE) IRAs combine employee and employer contributions. As with a traditional IRA, withdrawals from SIMPLE IRAs are taxed as ordinary income and, if taken before the age of 59, can be punished with a 10 percent federal income tax. Under the SECURE Act, in most cases, you must start making the minimum payouts required by the age of 72. The employers either correspond to the employee contributions up to 100 percent of the first 3 percent of the remuneration or contribute 2 percent to the remuneration of each eligible employee.

A 401 (k) is funded primarily by the employee; The employer can make additional contributions, including corresponding contributions. Under the SECURE Act, in most cases you will be required to make the minimum required distributions from your 401 (k) or other defined contribution plan by the year you turn 72. Withdrawals from your 401 (k) or other defined contribution plans are taxed as normal income, and a 10 percent federal income tax penalty may be imposed if it is taken before the age of 59.

Which plan is for high turnover?

The cost of covering short-term employees can be reduced through admission requirements and vesting.

Only employees who are at least 21 years old and who have been employed in three of the last five years need to be insured with the SEP-IRA.

The SIMPLE IRA must cover employees who have made at least $ 5,000 in the past two years and who are reasonably expected to make $ 5,000 this year.

The 401 (k) and defined benefit plan must cover all employees who are 21 years or older. Under the SECURE Act, these pension plans are open to employees who have either worked 1,000 hours in a full year or to those who have worked at least 500 hours per year for three consecutive years.

All SEP IRA, SIMPLE IRA, and 401 (k) employee deferral contributions are vested, while 401 (k) employer contributions and defined benefit benefits may have a vesting schedule.

Do I want to maximize contributions for myself (and my spouse)?

The SEP-IRA and 401 (k) offer higher contribution maxima than the SIMPLE IRA. For entrepreneurs starting late, a defined benefit plan can offer even higher allowable contributions.

My priority is to keep the administration simple and inexpensive.

The SEP-IRA and SIMPLE IRA are easy to set up and maintain. The 401 (k) can be more troublesome, but complicated testing can be avoided by using a Safe Harbor 401 (k). In general, the defined benefit plan is the most complex and expensive to make and maintain all plan decisions.

Securities and insurance products are offered through Cetera Investment Services LLC (insurance business in California as CFG STC Insurance Agency LLC), a member of FINRA / SIPC. Advisory services are provided by Cetera Investment Advisers LLC. None of the companies is affiliated with the financial institution that offers investment services. Advisory services are only offered by representatives of the investment advisors.

Investments are: * Not FDIC / NCUSIF insured * May lose value * No financial institution guaranteed * No deposit * Not insured by any federal agency.

The content has been developed from sources believed to provide accurate information. The information in this material is not intended to provide tax or legal advice. It must not be used to avoid federal tax penalties. Please contact legal or tax professionals for specific information about your individual situation. This material has been developed and produced by FMG Suite to provide information on a subject that may be of interest. FMG Suite is not affiliated with the aforementioned broker-dealer, state, or SEC-registered investment advisory firm. The opinions expressed and the material provided are for general information purposes only and should not be viewed as a solicitation to buy or sell any securities. Copyright 2021 FMG Suite.

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