{"id":19767,"date":"2016-08-10T17:35:27","date_gmt":"2016-08-10T21:35:27","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2016\/08\/business-report-retirement-plan-options.html"},"modified":"2017-11-08T11:01:10","modified_gmt":"2017-11-08T16:01:10","slug":"business-report-retirement-plan-options","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2016\/08\/business-report-retirement-plan-options\/","title":{"rendered":"Business Report: Retirement Plan Options"},"content":{"rendered":"
\n
\n\"debra\n<\/div>\n
\nDebra L. Smith is a CPA, tax manager at Marvin and Co. PC.<\/p>\n

Courtesy Marvin and Co. PC\n<\/p><\/div>\n<\/div>\n

\nBy Debra L. Smith, CPA\n<\/div>\n

Life expectancy continues to increase because of enhanced science and medical care and social security benefits are expected to be reduced in the future.<\/p>\n

For these reasons, it is likely that each of us will enjoy a long retirement that we will primarily have to fund ourselves. With the numerous retirement plan options available to sole proprietors and small businesses, it can seem overwhelming to compare and choose which option is right for you.<\/p>\n

Here are two of the more common plans:<\/p>\n

1. SEP IRA (Simplified Employee Pension), available for any size business. Eligible employees are defined as individuals 21 or older, employed by an employer in at least three of the last five years, and receiving at least $600 of compensation during the year.<\/p>\n

The pros: Easy setup with low (or no) setup costs. Just complete IRS form 5305-SEP and notify employees. It has affordable maintenance and no annual filing requirements.
\nContribution limits – the lesser of $53,000 or 25 percent of employee compensation (net earnings of the business for a sole proprietor).<\/p>\n

Contributions do not affect other accounts. Since employees cannot make elective salary deferrals to a SEP IRA, any contributions made by an employer does not affect their ability to contribute IRS maximum to another retirement account.<\/p>\n

Cons: All contributions are made by employer. The employee cannot make elective salary deferrals.<\/p>\n

Contribution percentages must be equal. You must contribute the same percentage to employee SEP IRA accounts that you contribute to your own, which can get expensive if you intend to contribute a large percentage to your own account.<\/p>\n

2. Solo 401(k) plan, available for self-employed individuals with no full-time (more than 1,000 hours) W-2 employees.<\/p>\n

Pros: Contribution limits. Salary deferral of $18,000, with a $6,000 allowable catch-up contribution for those 50 and over for 2016 with the ability to contribute up to an additional 25 percent of net earnings from self employment, for a total of up to $53,000 for 2016.<\/p>\n

Flexibility. You can contribute more in good years and less in tough years. You can also tailor the plan to allow easier access to funds through loans and hardship withdrawals<\/p>\n

Timing. Plan must be set up by Dec. 31 to make contributions for that tax year, but contributions can be made until the April 15 filing deadline (plus extensions).<\/p>\n

Cons: Limited to very small companies. If you grow to include even one full-time W-2 employee over age 21, you will need to terminate this plan and set up a full-fledged 401(k) plan.<\/p>\n

More costly. It requires plan document and administrator.<\/p>\n

Filing requirements. After $250,000, required to prepare and file Form 5500 annually.<\/p>\n

There are several different retirement plan options available for small businesses that can be considered, based on the employer’s business structure, age, potential for further growth. Only a couple were discussed here. There are also additional plan options that vary in degrees of complexity like the SIMPLE IRA, traditional 401(k), defined benefit pension, cash balance pension plans and others.<\/p>\n

Whatever plan you choose, it is important to keep in mind retirement basics:<\/p>\n

1. Start saving for retirement as soon as possible. Investments provide the most steady long-term growth over a longer period of time using the compounding effect where you earn interest on previously reinvested interest. Start sooner, rather than later, for maximum effect.<\/p>\n

2. Put away as much as you comfortably can. To benefit from the compounding effect, the more you can stash away now, the more compounding earnings can accumulate for later.<\/p>\n

3. Take advantage of tax benefits. Contributions made to plans by the employer are generally deductible from employer income for tax purposes, salary deferral plans allow contributions to be made by employees with pre-tax dollars, investments grow tax deferred until withdrawn and based on income levels there may even be additional tax credits and incentives available for those who save for retirement.<\/p>\n

4. Once contributed, leave the money alone. There are costly penalties for early withdrawal (generally before age 59 and a half if the plan does not have special provisions) of at least 10 percent that are meant to discourage removing funds. Additionally, money withdrawn will be subject to income tax on earnings, or entire withdrawal if contributions were made with pre-tax dollars.<\/p>\n

Smith is a CPA, tax manager at Marvin and Co. PC.<\/p>\n","protected":false},"excerpt":{"rendered":"

Debra L. Smith is a CPA, tax manager at Marvin and Co. PC. Courtesy Marvin and Co. PC By Debra L. Smith, CPA Life expectancy continues to increase because of enhanced science and medical care and social security benefits…<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48],"tags":[],"yoast_head":"\r\nBusiness Report: Retirement Plan Options - Glens Falls Business Journal<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2016\/08\/business-report-retirement-plan-options\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Business Report: Retirement Plan Options - Glens Falls Business Journal\" \/>\r\n<meta property=\"og:description\" content=\"Debra L. 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