Assignment 3 - Retirement Plans for Small Businesses Flashcards
1
Q
Tax Status of Partnership
A
- Partnership does NOT pay taxes
- gains/loss pass-through to partners
- Partner then pays taxes
2
Q
Partnership
A
- separate bus. entity owned by 2 or more partners
- may not be equal ownership
- general vs limited partners
- capital vs income
- could be “owner-employee”
3
Q
“Owner-employee” Partnerships
A
- self-employed owning 100% bus. int.
- partner who owns more than 10% in capital or profit portion of partnership
- important to understand with retirement planning
- if indiv. has control of plan structure as well as receiving benefits from the the plan, need SAFEGUARDS to make sure plan in’t a tax shelter for owner rather than a plan for all EE’s.
4
Q
- only sponsored by self-employed indiv.
- either DB or DC plan
- same nondiscrim. cov’g and partic. requirements apply
- Loans? = YES
- EEs = same way
- owner-EE’s = pay that is considered is whatever is left from rev. generated by the bus. after all exp. are paid.
1. need to consider FICA tax
A
Keogh (HR-10) Plans
5
Q
- in writing; must specify definite alloc. formula
- IRA with higher limits
- DC plan only
- comp. decides every year if and how much it will contrib. as a percentage of pay
- Contribs. = max 25% of pay up to $49,000
- contrib. held in IRA
- after contrib is deposited, company has no more responsibility for the inv., admin, or distrib. of the funds
- NOT an ERISA plan
- no restrictions on w/drawing of fund
- NO loans
A
Simplified Employee Pension Plans (SEPs)
6
Q
- 25 or fewer employees
- salary deferral limit is same as 401K
- each HCE subj. to limit of 125% of average deferral of NHCE
A
Salary Reduction SEP (SAR-SEP)
7
Q
- created in Small Business Job Protection Act of 1996
- 100 or fewer employees
- earn over $5,000 in two prior years OR anticipate earning $5,000 in current year
- either IRA or 401K
- can’t have another plan
- all contribs. are 100% vested
- no required level of partic. by EEs
- can be sponsored by corp, self-employed, partnerships, Chapt. S corps
- replacement for SAR-SEP plans
A
Savings Incentive Match Plans for Employees (SIMPLE Plans)
8
Q
- no fiduciary liabil.
- no annual 5500 or SPD required
- EE’s given 60-day enrollment period prior to start of plan year to make changes
- no loans
- matching contrib. required
- nonmatching contrib = 2% of compensation w/ limit
- must state contrib. method prior to enrollment period.
A
SIMPLE IRA
9
Q
- newest type of plan
- designed for business owner and spouse
- greater contrib. limits than profit sharing plan
- EGTRRA rules allow up to 100% of pay deferred, up to salary deferral limits ($16,500)
- catch-up contribs. for indiv. over age 50
- limited admin requirements
A
Solo 401K Plans
10
Q
a 401K plan that is offered to a one-person firm, or a two-person firm, usually composed of the owner and his or her spouse
cannot be offered to just owner/spouse and not the other employees
A
solo 401K plan
11
Q
an indiv. who owns the entire interest in an unincorporated business
A
owner employee
12
Q
Eligib. requirements for SEP’s
A
- age 21
- worked in 3 out of the last 5 years
- received at least $500 in 2007
- fully vested
13
Q
requirements for SIMPLE plans
A
- elective deferral limit - same as 401K
- catch-up contribs.
- required ER matching contrib.
14
Q
Eligib. requirements for Keogh plans
A
- cover all EEs who are 21 yrs old
- have at least 1-yr of service with ER
OR
- 2-yr watiing period can be used - requires 100% vesting after 2-yr period
15
Q
DB and DC limits for Keogh plans
A
- DB plans
* lesser of 100% of avg of partic.’s highest 3 consec. years of earnings OR $180,000 (2007) - DC plans
- lesser of 100% of partic’s comp or $45,000 (2007)
- self-employed = earned income less than 1/2 of self-emplmnt tax (not exceeding $225,000 2007)
16
Q
Tax-free rollovers for Keogh plans
A
- to another Keogh plan
- ER-sponsored retirement plan
- 403(b)
- 457(b)
- IRA
17
Q
SEP contrib. limits
A
- normal max = 25% of income up to $45,000 (2007)
- if self-employed = 25% limitation is based on “earned income” subtracting the half of self-emplymnt tax.
18
Q
SEP
ER deduciton limits
A
- may not exceed actual contrib. made to SEP for each EE (25% &/or Section 415 limits)
- ER can carry over excess ded. to nex tax year.
- 10% excise tax is applied to nonded. contrib. carried over
19
Q
SIMPLE contrib. limits
A
- EEs = elective contrib. annual max $10,500 (2007)
- catch-up after age 50
- ERs make matching contrib. or nonelective contribs.
- nonelective contribs. subject to $225,000 comp cap (2007)
- all contribs = fully vested and nonforfeitable
20
Q
LOANS
A
- Keogh = YES
- SIMPLE-IRA = NO
- SEP PLANS = NO
