Retirement Planning
We have spent years developing these plans and our customized plans have been pre-approved by the Internal Revenue Service. A company adopting one of our plans can be assured that the plan will be accepted by the Internal Revenue Service after submission. Review a copy of our Internal Revenue Service Advisory letter dated March 31, 2014
We have extensive experience in preparing Profit Sharing Plans and 401(k) Plans for our clients.
We begin the analysis of determining the best type of retirement plan by working with the client and the client’s accountant to ascertain the amount of business income the client can reasonably afford to contribute to the plan on a yearly basis. Then we work with the accountant, plan administrator, and plan actuary to design a retirement plan that satisfies the client’s objectives. The retirement plan designs are flexible so that the plan can accommodate change in business income available for contribution to the plan.
Profit Sharing Plans and 401(k) Plans provide important retirement opportunities.
Typical Advantages Of Profit Sharing Plans
- Tax deductions for sponsoring company contributions and employee deferral of income
- Tax deferral on the income earned in an employee’s account
- Flexibility- contribution, no contribution, or a varying contribution amount
- Availability for each employee to choose his or her own account investments
- Ability to borrow from the employee’s account
- Hardships withdrawals by the employee in times of need
Different Types of Profit Sharing Plans
Uniform Contribution Profit Sharing Plans
These Retirement Plans are the most straight forward. All participants receive the same percentage of their compensation. Example: 10% of an employee’s compensation each year is contributed to the employee’s account.
Integrated Profit Sharing Plans
This is a Retirement Plan with a contribution formula that takes into consideration the employer’s contribution to social security on behalf of the employee.
In other words, the employer gets “credit” for contributing to the employee’s social security by being permitted to use a contribution formula that takes into account compensation below and above the current year’s social security taxable wage base.
This formula has the effect of increasing the contributions to be made by the employer to the more “highly compensated employees” which are the business owner(s).
New Comparability | Cross Tested Profit Sharing Plans
This Retirement Plan design considers the factors of the employee’s job classification and employee’s age. The Plan is permitted to assign different contribution rates or percentages to the various classifications (Example- physicians, physician’s assistant, secretary, dentist, dental hygienist, hourly employee, salary employee).
Since the Internal Revenue Service prohibits the discriminating of contributions to the “highly compensated employees”, these Plans must pass certain tests on an annual basis. The tests are done by the plan’s actuary to insure compliance with the law.
The purpose of the plan design is to increase plan contributions to the “highly compensated employees” and older employees to a greater extent than could be contributed under the Uniform Contribution Plan or the Integrated Profit Sharing Plan.
Different Types of 401(k) Plans
If a Profit Sharing Plan is not suitable for an employer the employer can establish a 401(k) Plan. Also, the 401(k) Plan can be added to the Profit Sharing Plan to increase the contribution allocation to the highly compensated employees. Just like the Profit Sharing Plans, there are different types of 401(k) Plans.
Non-Contributory 401(k) Plans
This type of 401(k) Retirement Plan is funded entirely by the employee. There is no employer contribution. The advantage is that the employer has no required contribution. The disadvantage is that contributions of the highly compensated employees of the company are limited by the amount of deferred compensation elected by the lower compensated employees of the company. In addition, each year this type of 401(k) Plan requires that it pass what is call non-discrimination testing to be sure the highly compensated employees of the company have not exceeded the 401(k) Plan contribution limit.
Safe Harbor 401(k) Plans
The primary benefits of the Safe Harbor 401(k) Retirement Plan are that there is no annual non-discrimination testing and the highly compensated employees of the company can defer up to the dollar limit, which can change annually regardless of how much or how little the other employees defer in their 401(k) accounts.
The tradeoff for the increased amount of deferral is that the company has to contribute either 3% to each employee’s 401(k) account or match up to a maximum of 4% the employee’s compensation that the employee defers. If the employee does not defer part of his or her compensation, under a matching plan the company is not required to defer and yet the highly compensated employees can still defer up to the maximum annual dollar limit.
Additional requirements provide that all employer contributions are immediately 100% vested, there is no 1,000 hours of employment for each plan year required for employer contributions, and the employee does not have to be employed on the last day of the plan year to qualify for an employer contribution.
If an employee is over the age of 50, an additional contribution, called a “catch up” can be made on a yearly basis.
Click these Links to review the firm’s Internal Revenue Service Advisory Letter and the Uniform Lifetime Distribution Period Table which provides information on the Required Minimum Distribution once a person reaches the age of 701/2.