Princeton Executive Center
4301 Route 1 South; Suite 220
Monmouth Junction, NJ 08852

LinkedIn YouTube

United Wealth Group LLC

(732) 355-1050

 
Retirement

401(k) Plans Are Not Just for Big Businesses

Many small businesses are one person businesses. If this sounds like you, you might want to consider opting into a Solo 401(k) Plan. A Solo 401(k) plan is for a one-person business and may provide opportunities to increase your tax-deductible retirement plan contributions. If you’re considering establishing a SIMPLE or SEP Plan, a Solo 401(k) may be a better choice. Why? It may enable you to maximize your tax-deductible contributions, and help you meet your long range retirement goals.

Understanding the Landscape

Profit Sharing Plans and SEP Plans allow for flexible employer contributions up to 25% of participating payroll. SIMPLE Plans only allow for employee deferral contributions which are limited to $12,500 plus a $3,000 catch-up contribution for participants age 50 or older, as indexed for 2015, but don’t allow for flexible employer contributions. Since all 401(k) plans are profit sharing plans with a cash or deferred arrangement (CODA) allowing employees to contribute or defer a portion of their salary into the plan, in addition to the employer profit sharing contribution, you may make both an employer and an employee deferral contribution all in one plan.

If you’re a business owner with no employees and earning $100,000, you could set up a Profit Sharing Plan or SEP Plan, and make a maximum tax-deductible contribution of $25,000. However, since a plain Profit Sharing Plan or a SEP Plan only allows for employer contributions, you may be limiting the amount of money that can be put aside for retirement, as well as the tax savings, with a plain profit sharing plan or SEP Plan. By adding a 401(k) deferral element to a Profit Sharing Plan, you increase the amount you can contribute on a tax-deductible basis.

More Good News

An existing profit sharing plan may be easily amended to become a Profit Sharing/401(k) plan. In more cases, contributions previously made to a SIMPLE or SEP Plan, may be rolled over to a Profit Sharing/401(k) plan. Furthermore, there are no reporting requirements associated with a oneparticipant plan or a one participant and spouse plan, until the plan assets total $250,000 or more. Even then, only a Form 5500EZ is required to be filed.

Another important benefit to establishing a Profit Sharing/401(k) Plan is that you may purchase life insurance on a tax-deductible basis through the Profit Sharing/401(k) Plan Trust as long as the premiums are within the incidental benefit limits. This isn’t allowed in a SIMPLE or SEP Plan as the funding vehicle is an IRA. Profit Sharing/401(k) plans also have special rules associated with life insurance limits not available in any other qualified plan, such as using rollover or seasoned money to buy life insurance.

Be sure to review your existing retirement plans with a financial professional to determine if these strategies are right for you.

Brought to you by The Guardian Network © 2018. The Guardian Life Insurance Company of America®, New York, NY

22019-91490 Exp. 12/2021

DISCLAIMERS:

Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. This Material is Intended For General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation.

Share |
 

Related Content

Risk Tolerance: What’s Your Style?

Risk Tolerance: What’s Your Style?

Learn about what risk tolerance really means in this helpful and insightful video.

Financial Planning in the Year of the Ox

Financial Planning in the Year of the Ox

Chinese legend says that the Jade Emperor determined the order of animals in the zodiac by calling a race. The Rat and the Ox were in tight competition — until they arrived at a swift river. The Rat charmingly convinced the Ox to carry him across. But when they landed on the other side, the Rat leapt off the Ox and dashed across the finish line first.

Roth 401(k) vs. Traditional 401(k)

Roth 401(k) vs. Traditional 401(k)

This calculator compares employee contributions to a Roth 401(k) and a traditional 401(k).