SMALL BUSINESS
RETIREMENT SOLUTIONS
Choosing the right
R E T I R E M E N T P L AN
速
Benefits
1250 Capital of Texas Highway S. Building 2, Suite 125 Austin, TX 78746 Member NASD/SIPC A Registered Investment Advisor NFP Benefits is a division of NFP Insurance Services, Inc. Securities offered through NFP Securities, Inc. a Broker/Dealer and member NASD/SIPC. NFP Benefits is a division of NFP Insurance Services, Inc. a subsidiary of National Financial Partners Corp., the parent company of NFP Securities, Inc. Not all agents are licensed to offer securities through NFP Securities, Inc.
速
Benefits
Why should my company
<< Start A Retirement Plan? >> < <
> >
Ret i r e m e n t I n c o m e A retirement plan may help you bridge the gap between Social Security income and your total financial needs.
< <
Tax D e d u c t i o n s Contributions to employee accounts are tax deductible from business income.
< <
Tax C r e d i t s You may be able to claim a tax credit for part of the costs of starting and administering a SEP, SIMPLE, or qualified plan.
< <
Att r a c t Ta l e n t Retirement plans may assist in attracting new (and retaining valuable) employees.
Choosing the right
RETIREMENT PL AN
>> Small Business Retirement Solutions
> >
> >
> >
>>>>>
SEP
SIMPLE
Let us help you choose the retirement plan that meets your needs.
I n d i v i d u a l 4 01 ( k ) Qualified Plans Profit Sharing
S a fe H a r b o r 4 01 ( k ) Defined Benefit
â&#x20AC;&#x153;When Congress sweetened the tax breaks for retirement savings in 2001, some of the juiciest benefits went to the self-employed. If you work for yourself, by day or by moonlight, take a new look at your retirement plan choices.â&#x20AC;? --Forbes 12/09/2002
>>>>>
Neither NFP Benefits, NFP Insurance Services, Inc., or any subsidiaries of National Financial Partners Corp. offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
< < S i m p l i f i e d E m p l oyee Pension (SEP) Plan > >
< < Def ined Benef it Plan > >
How do
How do
<< Defined Benefit Plans >>
<< SEPs >>
work?
A
Y
ou or the eligible employee establishes an individual SEP IRA at a financial institution. You contribute to each eligible employee’s account by sending the contribution to the financial institution where the SEP IRA is maintained. The employee controls and owns the account and you determine the frequency and the amount of the contribution.
DB plan is a qualified retirement account that contractually agrees to pay a specific benefit at the plan holder’s retirement age.
< <
Ad va n t a g e s o f a D B P l a n
> >
ACCUMULATION: Lifetime DB accumulation limit is approximately $2,000,000.
• Salary history
TAX DEDUCTIONS: Contributions to an Individual DB plan are a deductible business expense and offer the largest deductions available under current tax laws.
• Planned retirement age • Length of employment • Investment performance
>>>>>
Contributions are based on: • Current age of employees
work?
< <
> >
CHOICE: Each year the employer chooses how much to contribute to employee accounts.
Which employers are eligible?
LOW COST: You are not required to file IRS Form 5500 if the document is distributed to employees, and the cost is minimal to set up and maintain.
Self-employed individuals
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INVESTMENT OPTIONS: The investment committee has greater flexibility in making investment decisions.
Ad va n t a g e s o f a S EP
C or S corporations
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Sole proprietorships
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ASSET PROTECTION: Plan assets are protected from creditors under current federal guidelines.
< <
D i s a d va n t a g e s o f a D B P l a n
> >
Have reached age 21
l
RESPONSIBILITIES: The employer is responsible for investment management, actuarial calculations, and annual contributions. These plans may be appropriate for:
> > Age
Income
Annual Contribution
$2,492
Employee B
$35,000
$8,750
$27,875
$4,255
Employee C
$25,000
$0
$45,881
$1,459
Total
• Medical practices
Employee A
39
$51,005
$4,547
Employee B
37
$32,160
Employee C
46
Employee D
23
• High-income entrepreneurs
Total Annual Contributions on behalf of Employees Total Annual Contributions on behalf of Owner + Employees Percentage of Total Annual Contribution for Owner Estimated first year income tax savings for Owner Benefit commitment for Owner at retirement
Employer Contribution 25%
$11,250
$175,595
$12,753 $188,348 93% $70,238 $980,012
Information based on tax regulations for 2007
Owner
Compensation
$45,000
$250,000
>>>>>
Employee/Owner
Employee A
61
• Real estate developers
> > $45,000
Owner
• Engineering firms
Case Study
$225,000
• Law firms • Venture capital firms
> >
CONTROL: The employee owns and controls the account.
Have received at least $500 (minimum for 2007) in compensation from you
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< <
D i s a d va n t a g e s o f a SEP
CONTRIBUTIONS: You must contribute the same % to each participant’s account as your own account.
Have worked for you for at least three of the last five years
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ADMINISTRATIVE COST: DB plans require actuarial projections and administrative maintenance.
Cas e S t u d y
< <
Which employees are eligible?
RISK OF LOSS: The employer bears 100% of the investment risk and mandatory annual contributions are subject to market volatility.
< <
CONTRIBUTIONS: You can contribute up to 25% of compensation or $45,000 in 2007, whichever is less.
Partnerships
l
$65,000
Subtract business tax deductions on total contributions (@ 35%)
($22,750)
Cost to employer after tax deductions
($42,250)
Employer’s contribution to his or her own Employer's contribution to account his or her own account
$45,000
Net cost or savings to employer
$2,750
*Employee C has only worked with the company for two years and owner decided to exclude. Information based on tax regulations for 2007
< < Savings Incentive Matc h Pla n > >
< < S a fe Harbor 401 (k) Plan > >
How do
How do
<< Savings Incentive Match Plans >>
<< Safe Harbor 401(k) Plans >>
work?
(SIMPLE)
U
nder a SIMPLE plan, employees can choose to make contributions to the plan via payroll deductions, and employers make either matching or non-elective contributions. Employers can establish a SIMPLE plan by funding SIMPLE IRAs for eligible employees.
work?
A
profit-sharing plan can include a participant salary deferral arrangement, called a 401(k) plan. Under this plan, participants can elect to have the employer contribute part of their pre-tax compensation to the plan, rather than receive the compensation. A Safe Harbor 401(k) plan allows HCEs to maximize contributions as long as the employer makes minimum contributions to participant accounts and follows a specific set of rules.
Which employers are eligible? You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you in the preceding year. Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. These plans may be appropriate for:
Requirements:
< <
Ad va n t a g e s o f a S I M P L E
> >
SIMPLICITY: There is no discrimination testing or IRS form 5500 reporting. LOW COST: No setup fees or plan administration fees charged to the business owner. VESTING: Employees are immediately 100% vested.
Self-employed individuals
l
C or S corporations
l
Partnerships
Which employees are eligible? Have worked for you at least two years
l
Have received at least $5,000 in compensation during any two years preceding the current year
l
Are reasonably expected to receive at least $5,000 during the calendar year
l
You can make less restrictive eligibility requirements but not more restrictive requirements
l
The Safe Harbor 401(k) option permits employers to choose between a matching option and a non-elective option
The matching option: Requires the employer to match dollar for dollar on the first 3% of employee deferrals and 50 cents on the dollar for the next 2% of pay (4% match on 5% deferral)
l
The non-elective option: Requires the employer to contribute 3% of compensation for all eligible employees regardless of whether employees make personal contributions
Ad va n t a g e s o f S a fe Harbor
> >
SAVE MORE: Paid employees can defer up to $15,500 ($20,500 if age 50 or older). NO TESTING: Safe Harbor 401(k) bypasses non-discrimination testing. ADP and ACP testing can prevent HCEs from deferring the maximum amount. Effective in 2002, Safe Harbor plans with matching contributions will not have to consider the top-heavy rules.
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Sole proprietorships
l l
l
< <
< <
D i s a d va n t a g e s o f a S I M P LE
> >
LIMITED: The inability to reach the $45,000 maximum annual qualified defined contribution limit. EXCLUSIVE: Can’t be paired with other qualified plans; therefore; it must be the employer’s exclusive plan. Additionally, a SIMPLE doesn’t permit Social Security integration. PENALTIES: High premature withdrawal penalty of 25% in first two years of participation.
All contributions must be 100% vested immediately
l
Employee Deferral Limits for Retirement Plans Tax Year
401(k) Under Age 50
401(k) Over Age 50
2004
13,000
16,000
2005
14,000
18,000
2006
15,000
20,000
2007
15,500
20,500
Information based on tax regulations for 2007
< < Pr of it-Shar ing Plan > >
How do
<< Profit-Sharing Plans >>
< <
work?
A
E m p l oye r C o n t r i b u t i o n O p t i o n s
> >
EMPLOYER MATCHING CONTRIBUTION. With this option you are required to match each employee’s salary reduction contributions on a dollar for dollar basis up to 3% of the employee’s compensation. You can choose a lower percentage: If you choose a matching contribution less than 3%, the percentage must be at least 1%. You cannot choose a percentage less than 3% for more than two years during the five year period that ends with (and includes) the year for which the choice is effective.
profit-sharing plan allows you to share your business profits with your employees. However, you do not have to make contributions out of net profits to have a profit-sharing plan. The plan must have a definite formula for allocating the contribution among the participants. This plan type has many variations, as shown below:
NON-ELECTIVE CONTRIBUTIONS. Instead of matching contributions, you can choose to make non-elective contributions of 2% of compensation on behalf of eligible employees. NEW COMPARABILITY
AGEWEIGHTED
STANDARD FORMULA
INTEGRATED FORMULA
Employees are grouped into categories. Different contribution formulas apply to each category of employees in accordance with non-discrimination regulations.
The contribution is allocated among employees based on relative age and salary. This results in older, more highly-compensated employees (HCEs) receiving a greater portion of the contribution.
The contribution is allocated based on each employee’s relative compensation.
The contribution is allocated based on the Social Security taxable wage base. Employees earning more than this receive a greater portion of the contribution to compensate for the smaller percentage of Social Security benefits they accrue.
< <
Ad va n t a g e s o f P r o f i t S h a r i n g
> >
HIGHER LIMITS: You (the employer) decide the amount you wish to contribute each year: up to 25% of total eligible compensation.
>>>>>
FLEXIBILITY: The amount of the profit-sharing contribution can change each year, although you do not have to make a contribution each year. LOANS: Participant loans are permitted. TAX SAVINGS: With a New Comparability plan, you could contribute generously to your own retirement savings while taking advantage of tax savings. New Comparability Plans may potentially be more powerful than a SEP or Simple IRA.
< <
E m p l oye e C o n t r i b u t i o n L i m i t s Tax Year
> >
SIMPLE IRA Under Age 50
SIMPLE IRA Over Age 50
2003
$8,000
$9,000
2004
$9,000
$10,500
2005
$10,000
$12,000
2006
$10,000
$12,500
2007
$10,500
$13,000
Information based on tax regulations for 2007
< <
Case Study
Employee/Owner Owner Employee A Employee B Employee C Employee D Employee E Employee F Total
> > Compensation $84,000 $36,000 $31,000 $29,000 $27,000 $24,000 $12,000
Deferral $10,500 $2,500 $2,000 $1,500 $0 $800 $0 $17,300
2% Nonelective Contribution $1,680 $720 $620 $580 $540 $480 $240 $4,860
Total $12,180 $3,220 $2,620 $2,080 $540 $1,280 $240 $22,160
3% Matching Contribution Total $2,520 $13,020 $1,080 $3,580 $930 $2,930 $870 $2,370 $0 $0 $720 $1,520 $0 $0 $6,120 $23,420
Total employer match contribution Subtract business tax deductions on total contributions (@ 35%)
$4,860
$6,120
($1,701)
($2,142)
Cost to employer after tax deductions
($3,159)
($3,978)
Employer's contribution to his or her own account
$1,680
$2,520
Net cost or savings to employer
($1,479)
($1,458)
Information based on tax regulations for 2007
< < Individual 401(k) Plan > >
< < Qualif ied Plan > >
How do
Why should you consider
<< Qualified Plans >>
<< An Individual 401(k) >> TAX SAVINGS
FLEXIBILITY
VESTING
ROLLOVERS
LOANS
LOW COST
Contributions are tax deductible and earnings are tax deferredeffectively reducing annual taxes your clients must pay.
Salary deferrals and profit sharing are discretionaryyou are able to increase, decrease or stop contributions at will.
You are 100% vested immediately.
You can roll over 401(k), 457, 403b and pre-tax IRA monies into the solo 401(k).
Loans are allowed for up to the lesser of 50% of the plan balance or $50,000.
Individual 401(k) accounts can be either self-service or full service. The annual administration and tax preparation fees for a full service account averages around $450.
< <
Annual Contr ibution Limits Compensation
Individual 401 (k)
Simple IRA
SEP IRA
$225,000
45,000
17,250
45,000
160,000
45,000
15,300
40,000
125,000
45,000
14,250
31,250
118,000
45,000
14,040
29,500
100,000
40,500
13,500
25,000
75,000
34,250
12,750
18,750
50,000
28,000
12,000
12,500
25,000
21,750
11,250
6,250
10,000
10,000
10,300
2,500
> > Name John Doe
Age 52
Earnings $93,211.13
Maximum Profit Sharing Contribution
$23,303
Maximum 401(k) Contribution
$15,500
$100,000
$5,000
$80,000
Maximum Contribution
$43,803
$60,000
Maximum SIMPLE IRA Contribution
$13,296
Maximum 401(k) Catchup
Maximum SIMPLE IRA Catchup
ualified plan rules are more complex than SEP and SIMPLE plan rules. However, there are advantages to qualified plans, such as more flexibility in plan design and increased contribution and deduction limits.
There are two basic kinds of qualified plans - defined contribution and defined benefit (DB) - with different rules applying to each. You can have more than one qualified plan, but your contributions to all the plans may not total more than the overall limits.
< <
$2,500
Maximum SEP Contribution
$23,303
Maximum DB Contribution
$93,211
Business Type Sole Proprietor Maximum Contributions
$40,000
$93,211
D e f i n e d C o n t r i b u t i on Plans
Profit-sharing
401(k)
Safe Harbor 401(k)
l
l
l
< <
DB Plans
Current age (older employees need to contribute more)
Average of three highest years of income
Planned retirement age
The accumulated balance
l
l
$23,303 $20,000
$15,796
l
$0
401(k)
SIMPLE
SEP
DB
Information based on tax regulations for 2007
> >
A target retirement benefit is set for each eligible employee in a DB plan, and the employer makes annual contributions that are calculated to provide that benefit. Upon retirement, the employee must be given the option to take distributions as an annuity. Contributions are based on:
l
$43,803
> >
A defined contribution plan provides an individual account for each participant in the plan. It provides benefits based on the amount contributed to a participantâ&#x20AC;&#x2122;s account. A defined contribution plan can be a profit sharing plan. Examples of defined contribution plans are:
>>>>>
Case S tudy
Q
> >
Information based on tax regulations for 2007
< <
work?
< < Individual 401(k) Plan > >
< < Qualif ied Plan > >
How do
Why should you consider
<< Qualified Plans >>
<< An Individual 401(k) >> TAX SAVINGS
FLEXIBILITY
VESTING
ROLLOVERS
LOANS
LOW COST
Contributions are tax deductible and earnings are tax deferredeffectively reducing annual taxes your clients must pay.
Salary deferrals and profit sharing are discretionaryyou are able to increase, decrease or stop contributions at will.
You are 100% vested immediately.
You can roll over 401(k), 457, 403b and pre-tax IRA monies into the solo 401(k).
Loans are allowed for up to the lesser of 50% of the plan balance or $50,000.
Individual 401(k) accounts can be either self-service or full service. The annual administration and tax preparation fees for a full service account averages around $450.
< <
Annual Contr ibution Limits Compensation
Individual 401 (k)
Simple IRA
SEP IRA
$225,000
45,000
17,250
45,000
160,000
45,000
15,300
40,000
125,000
45,000
14,250
31,250
118,000
45,000
14,040
29,500
100,000
40,500
13,500
25,000
75,000
34,250
12,750
18,750
50,000
28,000
12,000
12,500
25,000
21,750
11,250
6,250
10,000
10,000
10,300
2,500
> > Name John Doe
Age 52
Earnings $93,211.13
Maximum Profit Sharing Contribution
$23,303
Maximum 401(k) Contribution
$15,500
$100,000
$5,000
$80,000
Maximum Contribution
$43,803
$60,000
Maximum SIMPLE IRA Contribution
$13,296
Maximum 401(k) Catchup
Maximum SIMPLE IRA Catchup
ualified plan rules are more complex than SEP and SIMPLE plan rules. However, there are advantages to qualified plans, such as more flexibility in plan design and increased contribution and deduction limits.
There are two basic kinds of qualified plans - defined contribution and defined benefit (DB) - with different rules applying to each. You can have more than one qualified plan, but your contributions to all the plans may not total more than the overall limits.
< <
$2,500
Maximum SEP Contribution
$23,303
Maximum DB Contribution
$93,211
Business Type Sole Proprietor Maximum Contributions
$40,000
$93,211
D e f i n e d C o n t r i b u t i on Plans
Profit-sharing
401(k)
Safe Harbor 401(k)
l
l
l
< <
DB Plans
Current age (older employees need to contribute more)
Average of three highest years of income
Planned retirement age
The accumulated balance
l
l
$23,303 $20,000
$15,796
l
$0
401(k)
SIMPLE
SEP
DB
Information based on tax regulations for 2007
> >
A target retirement benefit is set for each eligible employee in a DB plan, and the employer makes annual contributions that are calculated to provide that benefit. Upon retirement, the employee must be given the option to take distributions as an annuity. Contributions are based on:
l
$43,803
> >
A defined contribution plan provides an individual account for each participant in the plan. It provides benefits based on the amount contributed to a participantâ&#x20AC;&#x2122;s account. A defined contribution plan can be a profit sharing plan. Examples of defined contribution plans are:
>>>>>
Case S tudy
Q
> >
Information based on tax regulations for 2007
< <
work?
< < Pr of it-Shar ing Plan > >
How do
<< Profit-Sharing Plans >>
< <
work?
A
E m p l oye r C o n t r i b u t i o n O p t i o n s
> >
EMPLOYER MATCHING CONTRIBUTION. With this option you are required to match each employee’s salary reduction contributions on a dollar for dollar basis up to 3% of the employee’s compensation. You can choose a lower percentage: If you choose a matching contribution less than 3%, the percentage must be at least 1%. You cannot choose a percentage less than 3% for more than two years during the five year period that ends with (and includes) the year for which the choice is effective.
profit-sharing plan allows you to share your business profits with your employees. However, you do not have to make contributions out of net profits to have a profit-sharing plan. The plan must have a definite formula for allocating the contribution among the participants. This plan type has many variations, as shown below:
NON-ELECTIVE CONTRIBUTIONS. Instead of matching contributions, you can choose to make non-elective contributions of 2% of compensation on behalf of eligible employees. NEW COMPARABILITY
AGEWEIGHTED
STANDARD FORMULA
INTEGRATED FORMULA
Employees are grouped into categories. Different contribution formulas apply to each category of employees in accordance with non-discrimination regulations.
The contribution is allocated among employees based on relative age and salary. This results in older, more highly-compensated employees (HCEs) receiving a greater portion of the contribution.
The contribution is allocated based on each employee’s relative compensation.
The contribution is allocated based on the Social Security taxable wage base. Employees earning more than this receive a greater portion of the contribution to compensate for the smaller percentage of Social Security benefits they accrue.
< <
Ad va n t a g e s o f P r o f i t S h a r i n g
> >
HIGHER LIMITS: You (the employer) decide the amount you wish to contribute each year: up to 25% of total eligible compensation.
>>>>>
FLEXIBILITY: The amount of the profit-sharing contribution can change each year, although you do not have to make a contribution each year. LOANS: Participant loans are permitted. TAX SAVINGS: With a New Comparability plan, you could contribute generously to your own retirement savings while taking advantage of tax savings. New Comparability Plans may potentially be more powerful than a SEP or Simple IRA.
< <
E m p l oye e C o n t r i b u t i o n L i m i t s Tax Year
> >
SIMPLE IRA Under Age 50
SIMPLE IRA Over Age 50
2003
$8,000
$9,000
2004
$9,000
$10,500
2005
$10,000
$12,000
2006
$10,000
$12,500
2007
$10,500
$13,000
Information based on tax regulations for 2007
< <
Case Study
Employee/Owner Owner Employee A Employee B Employee C Employee D Employee E Employee F Total
> > Compensation $84,000 $36,000 $31,000 $29,000 $27,000 $24,000 $12,000
Deferral $10,500 $2,500 $2,000 $1,500 $0 $800 $0 $17,300
2% Nonelective Contribution $1,680 $720 $620 $580 $540 $480 $240 $4,860
Total $12,180 $3,220 $2,620 $2,080 $540 $1,280 $240 $22,160
3% Matching Contribution Total $2,520 $13,020 $1,080 $3,580 $930 $2,930 $870 $2,370 $0 $0 $720 $1,520 $0 $0 $6,120 $23,420
Total employer match contribution Subtract business tax deductions on total contributions (@ 35%)
$4,860
$6,120
($1,701)
($2,142)
Cost to employer after tax deductions
($3,159)
($3,978)
Employer's contribution to his or her own account
$1,680
$2,520
Net cost or savings to employer
($1,479)
($1,458)
Information based on tax regulations for 2007
< < Savings Incentive Matc h Pla n > >
< < S a fe Harbor 401 (k) Plan > >
How do
How do
<< Savings Incentive Match Plans >>
<< Safe Harbor 401(k) Plans >>
work?
(SIMPLE)
U
nder a SIMPLE plan, employees can choose to make contributions to the plan via payroll deductions, and employers make either matching or non-elective contributions. Employers can establish a SIMPLE plan by funding SIMPLE IRAs for eligible employees.
work?
A
profit-sharing plan can include a participant salary deferral arrangement, called a 401(k) plan. Under this plan, participants can elect to have the employer contribute part of their pre-tax compensation to the plan, rather than receive the compensation. A Safe Harbor 401(k) plan allows HCEs to maximize contributions as long as the employer makes minimum contributions to participant accounts and follows a specific set of rules.
Which employers are eligible? You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you in the preceding year. Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. These plans may be appropriate for:
Requirements:
< <
Ad va n t a g e s o f a S I M P L E
> >
SIMPLICITY: There is no discrimination testing or IRS form 5500 reporting. LOW COST: No setup fees or plan administration fees charged to the business owner. VESTING: Employees are immediately 100% vested.
Self-employed individuals
l
C or S corporations
l
Partnerships
Which employees are eligible? Have worked for you at least two years
l
Have received at least $5,000 in compensation during any two years preceding the current year
l
Are reasonably expected to receive at least $5,000 during the calendar year
l
You can make less restrictive eligibility requirements but not more restrictive requirements
l
The Safe Harbor 401(k) option permits employers to choose between a matching option and a non-elective option
The matching option: Requires the employer to match dollar for dollar on the first 3% of employee deferrals and 50 cents on the dollar for the next 2% of pay (4% match on 5% deferral)
l
The non-elective option: Requires the employer to contribute 3% of compensation for all eligible employees regardless of whether employees make personal contributions
Ad va n t a g e s o f S a fe Harbor
> >
SAVE MORE: Paid employees can defer up to $15,500 ($20,500 if age 50 or older). NO TESTING: Safe Harbor 401(k) bypasses non-discrimination testing. ADP and ACP testing can prevent HCEs from deferring the maximum amount. Effective in 2002, Safe Harbor plans with matching contributions will not have to consider the top-heavy rules.
l
Sole proprietorships
l l
l
< <
< <
D i s a d va n t a g e s o f a S I M P LE
> >
LIMITED: The inability to reach the $45,000 maximum annual qualified defined contribution limit. EXCLUSIVE: Can’t be paired with other qualified plans; therefore; it must be the employer’s exclusive plan. Additionally, a SIMPLE doesn’t permit Social Security integration. PENALTIES: High premature withdrawal penalty of 25% in first two years of participation.
All contributions must be 100% vested immediately
l
Employee Deferral Limits for Retirement Plans Tax Year
401(k) Under Age 50
401(k) Over Age 50
2004
13,000
16,000
2005
14,000
18,000
2006
15,000
20,000
2007
15,500
20,500
Information based on tax regulations for 2007
< < S i m p l i f i e d E m p l oyee Pension (SEP) Plan > >
< < Def ined Benef it Plan > >
How do
How do
<< Defined Benefit Plans >>
<< SEPs >>
work?
A
Y
ou or the eligible employee establishes an individual SEP IRA at a financial institution. You contribute to each eligible employee’s account by sending the contribution to the financial institution where the SEP IRA is maintained. The employee controls and owns the account and you determine the frequency and the amount of the contribution.
DB plan is a qualified retirement account that contractually agrees to pay a specific benefit at the plan holder’s retirement age.
< <
Ad va n t a g e s o f a D B P l a n
> >
ACCUMULATION: Lifetime DB accumulation limit is approximately $2,000,000.
• Salary history
TAX DEDUCTIONS: Contributions to an Individual DB plan are a deductible business expense and offer the largest deductions available under current tax laws.
• Planned retirement age • Length of employment • Investment performance
>>>>>
Contributions are based on: • Current age of employees
work?
< <
> >
CHOICE: Each year the employer chooses how much to contribute to employee accounts.
Which employers are eligible?
LOW COST: You are not required to file IRS Form 5500 if the document is distributed to employees, and the cost is minimal to set up and maintain.
Self-employed individuals
l
INVESTMENT OPTIONS: The investment committee has greater flexibility in making investment decisions.
Ad va n t a g e s o f a S EP
C or S corporations
l
Sole proprietorships
l
ASSET PROTECTION: Plan assets are protected from creditors under current federal guidelines.
< <
D i s a d va n t a g e s o f a D B P l a n
> >
Have reached age 21
l
RESPONSIBILITIES: The employer is responsible for investment management, actuarial calculations, and annual contributions. These plans may be appropriate for:
> > Age
Income
Annual Contribution
$2,492
Employee B
$35,000
$8,750
$27,875
$4,255
$45,881
$1,459
Employee C
$25,000
$0
• Medical practices
Employee A
39
$51,005
$4,547
Employee B
37
$32,160
Employee C
46
Employee D
23
• High-income entrepreneurs
Total Annual Contributions on behalf of Employees Total Annual Contributions on behalf of Owner + Employees Percentage of Total Annual Contribution for Owner Estimated first year income tax savings for Owner Benefit commitment for Owner at retirement
Employer Contribution 25%
$11,250
$175,595
$12,753 $188,348 93% $70,238 $980,012
Information based on tax regulations for 2007
Owner
Compensation
$45,000
$250,000
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Employee/Owner
Employee A
61
• Real estate developers
> > $45,000
Owner
• Engineering firms
Case Study
$225,000
• Law firms • Venture capital firms
> >
CONTROL: The employee owns and controls the account.
Have received at least $500 (minimum for 2007) in compensation from you
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D i s a d va n t a g e s o f a SEP
CONTRIBUTIONS: You must contribute the same % to each participant’s account as your own account.
Have worked for you for at least three of the last five years
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ADMINISTRATIVE COST: DB plans require actuarial projections and administrative maintenance.
Cas e S t u d y
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Which employees are eligible?
RISK OF LOSS: The employer bears 100% of the investment risk and mandatory annual contributions are subject to market volatility.
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CONTRIBUTIONS: You can contribute up to 25% of compensation or $45,000 in 2007, whichever is less.
Partnerships
l
Total
$65,000
Subtract business tax deductions on total contributions (@ 35%)
($22,750)
Cost to employer after tax deductions
($42,250)
Employer’s contribution to his or her own Employer's contribution to account his or her own account
$45,000
Net cost or savings to employer
$2,750
*Employee C has only worked with the company for two years and owner decided to exclude. Information based on tax regulations for 2007
Why should my company
<< Start A Retirement Plan? >> < <
> >
Ret i r e m e n t I n c o m e A retirement plan may help you bridge the gap between Social Security income and your total financial needs.
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Tax D e d u c t i o n s Contributions to employee accounts are tax deductible from business income.
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Tax C r e d i t s You may be able to claim a tax credit for part of the costs of starting and administering a SEP, SIMPLE, or qualified plan.
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Att r a c t Ta l e n t Retirement plans may assist in attracting new (and retaining valuable) employees.
Choosing the right
RETIREMENT PL AN
>> Small Business Retirement Solutions
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SEP
SIMPLE
Let us help you choose the retirement plan that meets your needs.
I n d i v i d u a l 4 01 ( k ) Qualified Plans Profit Sharing
S a fe H a r b o r 4 01 ( k ) Defined Benefit
â&#x20AC;&#x153;When Congress sweetened the tax breaks for retirement savings in 2001, some of the juiciest benefits went to the self-employed. If you work for yourself, by day or by moonlight, take a new look at your retirement plan choices.â&#x20AC;? --Forbes 12/09/2002
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Neither NFP Benefits, NFP Insurance Services, Inc., or any subsidiaries of National Financial Partners Corp. offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
SMALL BUSINESS
RETIREMENT SOLUTIONS
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R E T I R E M E N T P L AN
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