Planned Assets Planning Blog

As business owners we often get behind in being able to plan and fund our own retirement.  The first several years there may be little or no income but as business develops income gets better but the age creep is there, retirement is now you what can you do? If you are self-employed or the sole employee (your spouse can be included) of your S or C corporation two of the best options may be a solo 401(k) or a Roth 401(k)

Both have been around a few years but have become more common now as accountants with entrepreneurial clients have awakened to the need.  These plans are designed for independent contractors and the owners of small businesses to hold and develop retirement savings.  Such plans are becoming the most desirable retirement investment option as the annual contribution limits are set high and grow tax deferred or tax free with the Roth.

The 2012 Solo 401k contribution limit is $50,000 or $55,500 if age 50 or older.  Contribution actually consist of two parts; salary deferral and profit sharing contributions.  Total contribution combines these two for the maximum contribution limit.  But calculation of how much can actually be contributed is dependent on whether your business is taxed as a corporation or as a sole proprietor.

Contributions for 2012 sole proprietor, partnership or an LLC taxed as a sole proprietorship:

1.      100% of net adjusted business profits income up to the maximum or $17,000 or $22,500 if age 50 or older.

2.      Profit sharing contribution up to 20% of net adjusted business profits.

Contributions for a S or C corporation or an LLC taxed as a corporation:

1.      100% of W-2 earnings up to the maximum of $17,000 or $22,500 if age 50 or older.

2.      Profit sharing contribution up to 25% of W-2 earnings.

And yes, a Solo 401(k) allows you to put away more than a SEP IRA. If you can reliably contribute at least $15,000 a year, solo 401(k) plans often make more sense than SEP IRAs.

Isn’t it time to have a conversation concerning your retirement plans?  Retirement planning to actually meet your goals and objectives is not do it yourself project, even more so for a business owner.  If you would like to have a conversation concerning your options call (888 270 9870) or email ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it. ).  Remember, time is not on your side, so do it today.

Simple 401(k) plans and Safe Harbor 401 (k) plans vary from the traditional 401(k) in that each has a funding requirement.  The basic attraction for Simple 401 (k) and Safe Harbor plans, they do not require non-discrimination and top-heavy testing to ensure that the plan operates in compliance with regulatory requirements.  Because such testing must be done by professionals who specialize in this area the testing can be financially burdensome.  The removal of this requirement can be very appealing to the small business owner who desires the features of a 401(k) plan, but can’t afford the administrative cost.  Contributions allowed for a Simple 401(k) are lower than a traditional 401(k), in 2012 the maximum deferral limits for a simple was $11,500.  

Employer contributions to an employee’s SIMPLE 401(k) account have been limited to 3% of the employee’s compensation and employers could not consider compensation in excess of $245,000 for 2011 (Indexed)for plan purposes. 

If your business has reached the position where it may be ready to help your employee plan for retirement, now may be the time for a conversation on your best options and why helping your employees plan for retirement may also be good business.  Call (888 270 9870) or email (hmcminn@plannedassets.com) if it’s time for this conversation, we can help. 

A Section 401(k) plan (also known as a “cash or deferred arrangement”) is a qualified profit sharing or stock bonus plan under which plan participants have an option to put money in the plan or receive the same amount as taxable income.  For 2012 pre-tax contribution limit for 401(k) plans is $17,000 with an index for inflation set at $500 increments. However, the employer is free to matches employees salary reductions, either dollar for dollar or under another formula.  For example, the plan might provide for the employer to contribute an amount equal to 50% of the amount the employee elected as a salary reduction.

In 2012 maximum 401(k) contribution for over age 50 [catch-up provision] is $5,500 and is indexed for inflation at $500 increments.  Combining pre-tax limits and the catch-up provision an individual over 50 could contribute up to $22,500 for the year.  This plus any employer contribution can form a significant part of an employee’s retirement income.

If your business has reached the position where it may be ready to help your employee plan for retirement, now may be the time for a conversation on your best options and why helping your employees plan for retirement may also be good business.  Call (888 270 9870) or email ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it. ) if it's time for this conversation, we can help. 

A simplified employee pension (SEP) is an employer-sponsored plan under which plan contributions are made to the participating employee’s IRA. SEP plans can provide a significant source of income at retirement when employers set aside money in retirement accounts for themselves and their employees.  A SEP does not have the start-up and operating cost of a conventional retirement plan and allows for contributions up to 25% of each employee’s pay.  These tax-deferred contributions levels are generally significantly higher than maximum contribution limits for traditional IRAs.  SEPs provides for employer contributions only.

SEPs are easy to adopt and generally simple to administer, while providing employees with tax-deferred retirement savings benefits of a qualified plan.  For 2012 contributions to an employee’s SEP-IRA cannot exceed the lesser of:

1.      25% of the employee’s compensation or

2.      $50,000

Why would a business owner want to establish and fund a retirement account for his or her employee’s?  In today’s economy retaining or attracting great employee’s is predicated not only on salary an employee may earn but benefits available.  At this point and time attracting employees may not be as difficult as at previous times but retaining your best employee’s is.  An employee may remain even if compensation is not as competitive as perhaps your competitor due to the level of benefits available.  The two most important benefits employees look for:

1.      Health Insurance

2.      Retirement Plans

When is a SEP a good idea?

1.      When the employer is looking for an alternative to a qualified plan that is easier and less expensive to install and administer.

a.      For very small employers, a SEP is one of the simplest types of tax-deferred employee retirement plans available.

2.      When an employer wants to install a tax-deferred plan and it is too late to adopt a qualified plan for the year in question.

3.      When an employer wants to provide a qualified plan with flexibility in the timing of contributions.

a.      The employer is free, at its discretion, to make or not make contributions to the plan in any given year.

4.      When partners and proprietors of an unincorporated employer would like to set up a retirement plan for themselves.

What about tax implications?

1.      An employer may deduct contributions to a SEP, up to 25% of the total payroll of all employees covered under the plan, but contributions must be made under a written formula that meets requirements of the Internal Revenue Code.

For additional information or to have a conversation how your business could benefit and how simple and cost effective setting up a SEP can be, calls us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

With the April tax filing deadline just around the corner, now is the ideal time for small-business owners to reassess their need for introducing a retirement plan for their business or to reassess their retirement plans and determine if they meet their needs.

Most small business owners with less than 100 employees down to just one employee, themselves, do not understand the advantages of establishing a retirement plan.  For the self employed it is absolutely necessary to develop a plan and fund it, as you have to provide nearly all the funds for your retirement.  The small business owner with employees who want to retain or attract great employees may find offering a retirement plan is a cost effective option.

Why don’t small business owners provide retirement plans?  The top reason found by Fidelity Investments in a recent survey or 100 small business owners who do not have a retirement savings plan is expense.  Expense not necessarily the cost of funding the plan but cost and complexity of managing a plan.

Fortunately, small business plans need not be complex or expensive to set up or maintain.  The real problem is a knowledge gap.

Retirement plans can be tremendous valuable for the business, the employees and the owner of any size small business.  It might be worth while spending a small amount of time talking with us about a retirement plan and what it can do for your business

Does your business need Key Person Insurance?

Do you have a key employee? Such an employee may also be the owner of the business, but generally speaking a key employee is one who has specialize abilities that are critical to the operation of the business and difficult or expensive to replace.  This could be almost any specialized ability from technical to your key salesman that brings in most of the business.

Then yes you do.  A specialized skill set may be difficult as well as expensive to replace at any time and the cost of recruiting specialized abilities can be expensive in cost and time.  What if this individual is your key salesman bringing in 40% of sales what is the cost of his loss? Can the company survive while you seek a replacement or replacements?

Any of a hundred scenarios could happen at the very worst time, financially.  If you have  key employ insurance paid by the company, the death benefit is paid directly to the business.  The funds are treated as an addition to surplus and may be received free of any direct income tax.

Is this an employee you would like to keep?

Key person insurance can be designed as part of an employee agreement sometimes known as a golden parachute.   Maintaining insurance on the key person and using a growing portion to take care of the individual’s family and/or using the cash value to fund a bonus over a certain period of employment can go a long way in keeping a key employee from being enticed away.

One use of key person insurance: Policy cash values are carried as a business asset, and are available as collateral for obtain commercial loans, or for borrowing directly from the insurance company.  Depending on policy, cash value may not be reduced and continue to accrue full interest during time of loan. There is no tax on the loan and interest may be fully deductible. 

Once the policy is no longer required, the policy may be sold to the employee or surrendered for value in access of premiums paid during the life of the policy.

As a business owner wouldn’t a conversation concerning protecting one of your key assets make sense? Today is the best time to have this conversation.  Please call (888 270 9870) or email ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it. ) to speak with or correspond with Hubert McMinn Jr.  Do it today!