{"id":30210,"date":"2017-11-08T13:16:44","date_gmt":"2017-11-08T18:16:44","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/?p=30210"},"modified":"2017-11-09T12:06:39","modified_gmt":"2017-11-09T17:06:39","slug":"business-report-savings-plan-options","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2017\/11\/business-report-savings-plan-options\/","title":{"rendered":"Business Report: Savings Plan Options"},"content":{"rendered":"
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Kevin M. Hedley is a partner with Hedley & Co. PLLC.<\/figcaption><\/figure>\n

By Kevin Hedley<\/p>\n

As Congress and the White House debate tax plans, there have been much discussed changes to the traditional 401(k) plan. The proposed plan to adjust the maximum limit for contributions has been tabled but we still have a long way to go before we have a tax plan in place.<\/p>\n

That does lead to the questions\u2014What are the limits for various retirement plans and what are some options for a small business owner to save for retirement?<\/p>\n

Depending on your immediate and long term goals there are plenty of options. There are defined benefit plans, Defined contribution plans and other retirement savings plans such as SEPS, SIMPLES and IRAs to name a few. All of these plans allow a deduction from current income if a contribution is made according to the respective plan terms. The differences between them include the amount of contribution and the costs of administering each plan.<\/p>\n

Benefits are paid from these plans in most cases at retirement, death, disability, or separation from service.\u00a0Distributions from plans that do not fall into one of the allowed categories are also subject to penalty ranging from 10 percent to 25 percent.<\/p>\n

Under a defined benefit plan, an employer makes annual contributions to the plan to provide each participant with a set benefit at retirement. Contributions to the plan are actuarially determined, and the plan can be integrated with social security. An integrated plan reduces the contribution for the lowest-paid employees and still allows for a significant contribution on behalf of the owner and key executives. Benefits under the plan are fixed using a definite formula. Typically, the formula expresses the benefits in one of the following ways:<\/p>\n

<\/p>\n

\u2022 <\/b>A certain percentage of an employee\u2019s compensation averaged over his or her entire career or a limited number of years.<\/p>\n

\u2022 <\/b>A flat-dollar monthly payment.<\/p>\n

\u2022 <\/b>A certain unit percentage of compensation or dollar amount for each year of service with the employer.<\/p>\n

Annual benefits for 2017 from a defined benefit plan generally may not exceed the lesser of (a) $215,000 or (b) 100 percent of the participant\u2019s average compensation for their high three years.<\/p>\n

Defined benefit plans are not as widely used as defined contribution plans because annual contributions must be actuarially computed and a primary reason there are not widely used as they can be expensive to administer.<\/p>\n

There are two types of defined contribution plans:<\/p>\n

\u2022 <\/b>Pension plans, which have a minimum required annual contribution (money purchase pension plans).<\/p>\n

\u2022 <\/b>Profit-sharing plans, which normally have discretionary contributions (determined each year by the employer).<\/p>\n

A 401(k) plan is a profit-sharing plan with employee deferral election provisions .<\/p>\n

For 2017, the contribution limit to an employee\u2019s account in a defined contribution plan is the lesser of (a) $54,000 or (b) 100 percent of the participant\u2019s annual compensation. For 2018 the limit will be $55,000, or 100 percent of the participant\u2019s annual compensation.<\/p>\n

A money-purchase pension plan is a type of defined contribution plan. Contributions to the plan, rather than benefits, are fixed by a formula, which is usually a fixed percentage of compensation. Each participant\u2019s benefits are subsequently determined by an accumulated balance in his account.<\/p>\n

In general, deductible employer contributions to a money-purchase plan are limited to 25 percent of the eligible participant\u2019s compensation (up to $270,000 for 2017; $275,000 in 2018). However, the employer should understand that contributions are set by formula and, once adopted, must be made annually. Thus, many money-purchase plans adopt a 10 percent contribution formula, supplemented with a 15 percent contribution to a profit-sharing plan.<\/p>\n

A 401(k) plan is a type of plan to which employees can elect to make pretax contributions (salary deferrals). Generally, 401(k) plans are the only qualified retirement plans that offer employees a way to contribute on a pretax basis to the plan. These amounts accumulate in the plan, along with investment gains and losses, and are only taxed when distributed from the plan. I should also note that 403 (b) plans are similar to 401(k) plans but are used for nonprofit organizations, religious groups, school districts, and governmental organizations.<\/p>\n

To encourage employee participation in the plan, the employer may offer to match salary deferrals under a stated formula. For example, an employer may match 50 cents of each dollar deferred by employees. The employer can also set a cap on the maximum amount it will match. For example, the employer may match 50 cents of each dollar, up to a maximum of 6 percent of compensation. Matching contributions may also be discretionary (i.e., decided at year-end), but must be made according to the terms of the plan document.<\/p>\n

The annual maximum contribution that an employee may make to a 401(k) plan is $18,000 ($24,000 if age 50 or older) for 2017. The $18,000 limit is set to increase to $18,500 ($24,500 if age 50 or older) in 2018.<\/p>\n

These are the basic rules as we know them today, they may change with the new tax laws.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Kevin Hedley As Congress and the White House debate tax plans, there have been much discussed changes to the traditional 401(k) plan. The proposed plan to adjust the maximum limit for contributions has been tabled but we still have a long way to go before we have a tax plan in place. That does […]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23,52],"tags":[],"yoast_head":"\r\nBusiness Report: Savings 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\/2017\/11\/business-report-savings-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: Savings Plan Options - Glens Falls Business Journal\" \/>\r\n<meta property=\"og:description\" content=\"By Kevin Hedley As Congress and the White House debate tax plans, there have been much discussed changes to the traditional 401(k) plan. 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