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Retirement Planning Services

June 16th, 2005 · No Comments

Retirement products are a key element of overall financial plans. When creating financial plans, both individuals and companies must address the issues of cash management, risk management, and wealth accumulation. Financial plans for individuals must also address the need for financial independence and estate planning.


Traditional IRA

Traditional IRAs are simple retirement plans for individuals that allow earnings to accumulate tax-deferred. Individuals may contribute up to $2,000 of earned income each year. A non-working spouse may also contribute up to $2,000 each year. All of these contributions are tax-deductible. IRA funds may be withdrawn after age 59 1/2 (there is a 10% penalty tax, in addition to regular income tax, for withdrawals under age 59 1/2).

Roth IRA
The primary difference between a Traditional and a Roth IRA is that Roth IRA earnings accumulate completely tax-free (not just tax-deferred). Roth IRAs allow an individual to contribute up to $2,000 of earned income each year, and a non-working spouse to also contribute up to $2,000 each year (individual income must be $95,000 or less, and joint income must be $150,000 or less). Contributions are made with after-tax dollars. You pay no taxes when you withdraw qualified earnings, as long as your Roth IRA has been open for at least five years, you are at least 59 1/2, and certain other conditions are met.

Education IRA
An Education IRA expands options for education savings programs. It allows parents, friends, or any other party to make contributions on behalf of a child under age 18 .for the purpose of saving for post-secondary education expenses. While the contributions are not tax-deductible, the earnings grow on a tax-deferred basis. Distributions are tax-free if used to pay for qualified higher education expenses.

SEP-IRAs are low-cost retirement plans for corporations, partnerships, “S” corporations, and sole proprietorships. SEP-IRAs are also appropriate for individuals who may have self-employment from a side job. These are simple, easy to establish and maintain plans in which the employer makes deductible contributions to employees’ IRA accounts. Contributions are not required each year. No Form 5500 or Department of Labor filings are required. SEP-IRAs are deductible by the employer as a business expense.

Savings Incentive Match Plans for Employees (SIMPLE) IRAs are low-cost retirement vehicles available to employers with 100 or less employees. Unlike most retirement plans, the employer is not required to perform nondiscrimination testing or extensive plan reporting to maintain a SIMPLE. The employer is, however, required to make employer-matching contributions. These plans may be funded as IRAs or as 401(k) plans.

Qualified Retirement Plans

A 401(k) plan allows employers to make tax-deductible contributions on behalf of their employees. This plan has a salary deferral feature that permits employees to defer a portion of their salary into the plan on a pre-tax basis through payroll deduction. Employee deferrals may not exceed the lesser of $10,500 (indexed for inflation) or 15% of total annual compensation.

Profit Sharing Plans:

Salary Ratio Plan
This plan is designed to allocate employer contributions to all participants on an equivalent basis. For example, if one employee receives 10% of her compensation as a contribution, then all employees who are eligible will receive a contribution equal to 10% of their compensation. Salary Ratio plans are more attractive to employers than SEP-IRAs in cases where an employer does not want to cover part-time employees, wants employees to earn their benefits over a period of time (vesting), or wants remaining employees to share in forfeitures left after separation of service occurs.

Social Security Integration Plan
With a Social Security Integration plan, employees who earn compensation in excess of the Social Security Taxable Wage Base ($80,400 for 2001) accrue no government-provided social security retirement benefits in excess of the base. In order for those employees to have retirement income comparable to their current income, the IRS allows additional contributions to be made to them based on their compensation above the Wage Base. Social Security Integration plans should be used when employees who are targeted to receive larger allocations are more highly compensated than all other employees, but whose age is the same (or younger) than other employees.

Age-Weighted Plan
This plan greatly benefits employees who are older and closer to retirement.
It allows employers to target larger allocations to employees who are both older and more highly compensated than all other employees. These employees could include owners, officers, or individuals who have been employed for several years. Age-weighted plans are flexible in design and funding. Employer contribution may vary from 0% to 15% of eligible payroll.

New Comparability
This plan allows the employer to divide the employees into groups and allocate the contribution to those employees whom the employer wishes to benefit most. In this way, owners maximize dollar allocations and also maximize the highest percentage allocation of the total contribution. New Comparability plans should be used when the employees that companies want to receive larger allocations are more highly compensated and older than other employees.

Money Purchase Pension Plan
This is a comprehensive, flexible, full-service, defined contribution plan for companies of any size. It allows greater tax-deductible employer contribution limits than other defined contribution plans. Employers may deduct as a business expense contributions made up to a maximum of the lesser of 25% of compensation or $35,000 per participant.

A 403(b) is a salary savings plan for non-profit organizations and public schools. It is primarily funded by employee pre-tax contributions. Employee deferrals, which must be made through payroll deduction, reduce taxable income for the year in which they are made. These plans may be combined with Profit Sharing, Money Purchase, of SEP-IRA plans to allow for employer contributions.

Defined Benefit Plan
This plan provides a specific retirement benefit expressed as either a percentage of compensation or a dollar amount. Contributions are determined based on benefits desired, time until retirement, and actuarial calculations. The annual contribution limit is actuarially determined based on the amount needed to provide a maximum annual benefit of not more than $140,000 at retirement. Employer contributions are a deductible business expense.

Non-qualified Retirement Plans

457 Deferred Compensation Plan
A 457 plan is a non-qualified salary deferral plan available to state and municipal employees. Employees may contribute, through payroll deduction, to a number of different products. They may contribute up to the lesser of $8,500 or 25% of annual compensation. Contributions reduce taxable income in the year in which they are earned. All contributions and investment earnings are tax-deferred until withdrawn.

Non-Qualified Deferred Compensation Plan
This plan is designed to supplement most qualified retirement plans. It allows employers and employees to set aside additional dollars for future use, with significant tax opportunities. This plan offers a solution to business owners and executives who find themselves increasingly limited as to how much income they can shelter for retirement under qualified retirement plans.

Category: Insurance