Jacksonville CPA | Contributing To Your Employees
Hello everyone and welcome to podcast today. We’re going to continue our conversation about retirement plan options for small businesses. So if you’re Jacksonville CPA is not helping you with this issue, then please give me a call and we will do what we can to help. So I believe we’ve already called covered the Myra, the federal government plan that invest in government bonds, the simplified employee pension plan or a sep and the savings incentive match plan for employees otherwise known as this simple would be the next plane that we were or we would cover it, the simple IRA.
Um, so, and forgive me if we covered this on the, in the last segment, um, but if you’re Jacksonville CPA is not talking about this and give them a neighbor a call. So I’ve used this plan in the past as have many of my clients. It’s very low cost plan, easy to set up a, here are a couple of the just brief points, overview of the benefits and the requirements. So employers must contribute annually. Um, employees can contribute up to $12,500 a year unless they’re 50 or older. And then they can do $3,000 catch up contributions. Okay. This, this is more for small companies with 100 workers or less savings incentive match plan for employees. Small employers or simple IRA
is a great option if you have a small company, fewer than a hundred place, okay? An employee may choose to contribute, but an employer must contribute annually. An employee can contribute up to $12,500. We already went over this. The employer can participate in one of two ways. He or she can choose to match each employee’s contributions dollar for dollar up to three percent of the employee’s compensation. If the employer has allows a year matching contribution can be reduced to less than three percent, but the contribution must be at least one percent. And this is only allowed in two out of five years. I did have a client of mom take advantage of this in a down year. Okay? An employer make a two percent contribution alternatively of total compensation for each eligible employee up to a cap in Twenty 15, 2016 at $265,000. Under this option, employees don’t have to contribute anything, but the can up to the employee contribution limit stated above.
Okay. So this is a great option if you’re discouraged by the cost and paperwork associated with a four oneK, and m
So if your jacket’s fellow CPA is not talking about this and please give them a call. Okay. Our next plan here, so simple for a one k savings incentive match plan for employees. So that is the simple acronym. Okay. The simple 401k is very similar setup to a simple IRA and uh, it’s also for small companies. And what’s different is it can allow loans from the plan. Simple. I read you cannot do that. A simple IRA, you could call the simple 401k the simple Iras first cousin contribution roles are very similar in both cases. The plans are not subject to the non discrimination income tests that apply to regular 401k plants and employees are fully vested immediately for all contributions. The biggest difference is that simple 401ks can allow loans from the plan, an option, some small business owners and might find attractive for small businesses where no one earns more than about 50,000 a year. The contribution limits on a simple plans are high enough. They’re good for moderate income people because they won’t Max out the options anyway.
and now let’s go to the next plan, which would be a solo four, zero one k plan.
so in this case you would have one participant, hence the name Solo.
You can see contributions cannot exceed $53,000 annually. This would be for a self employed owner only business and partnerships. Okay. You must start to file paperwork once your assets reached $250,000 and greater.
The best thing about a a one participant or 401k, it’s that you can maximize contributions if your income is too low to allow you to get the most out of a Sep IRA plan. For example, you have to earn a lot to contribute the maximum $53,000 to a Sep Ira. Conversely, you can earn less and still contribute more to a 401k plan because the sep is contribution is based on a up to 25 percent. You cannot go lower than 25 percent of your your business income. The Solo 401k plan works in this manner as both employer and employee business owner can contribute both elective deferrals up to 100 percent of earned income up to the annual contribution limit, which is 18,000 or 24,000 or 50 year old or 25 percent of compensation. So if your Jacksonville CPA is not giving these options, then give them a call. Okay? So you can contribute both elected deferrals after 100 percent of her income. So this is great in comparison to a sap where you have, you know, if you only earned $18,000, you only contribute 25 percent of that number. Whereas you can defer to 100 percent of $18,000 in compensation plus 25 percent of compensation, which the irs defines as net earnings from self employment minus one half of your self employment tax and minus contribution you make to your retirement plan. Total contributions cannot exceed the 53,000, so for k has a few downsides.
That paperwork and costs are very limited. When you’re savings reach $250,000 or more. You do have to file a form 5,500 annually, but that’s not super burdensome. Self employed individuals in owner only businesses and partnerships are eligible and owner spouses may also participate. If you’re considering doing one of these, look for someone that does not charge a setup or management fee. It’s a very powerful way to save for retirement. Okay. The last one listed as defined benefit plans. We may do this on another segment, um, but if you’re Jacksonville CPA again is not giving you all of these options, exploring these, looking at your unique situation and trying to figure out what your goals are and what you need to use to reach your goals is everyone is different. Then please give me a call and we will help you out. So again, just to recap, we started out with the Myra government Ira, the Sep Ira, self employed pension plan, the simple IRA savings, sort of match plan for employees. Simple 401k solo 401k next is going to be the defined benefit plan, so if you’re Jacksonville CPA, I’m cannot help you with that. Then please give us a call. It’s a very good opportunity to defer a lot of income. That’s it for today.