Masonry Magazine May 2003 Page. 51
401(k) Plans:
If you have a 401(k) plan already in place, and you decide to hire a non-owner employee, you now have new administrative, fiduciary and financial responsibilities that extend to your employee. In most cases, you would have to start making contributions to your employees' 401(k) accounts, not just your own. If you fail to contribute to your employees' 401(k) accounts, yet continue to contribute to your own, you would most likely not pass the "non-discrimination test." This test exists to ensure all employees are treated evenly and fairly. With a 401(k) plan, if you contribute for one, you must contribute for all.
Simplified Employee Pensions (SEPs):
This second, very popular plan lets you set up a generous IRA for you and your employees. With this scenario, however, employees do not make any contributions on their own behalf. The plan is funded entirely by employer contributions. You, as the employer, however, have wide flexibility in deciding how much to contribute and when to contribute. In fact, you can vary what you decide to contribute from year to year and do not even have to make contributions at all in any given year. This eases your responsibilities if your business is cyclical or experiences some hard times. Maximum contribution limits are, like the Solo 401(k), the lesser amount of 25 percent of earned income or $40,000 annually. (This limit is linked to the rate of inflation and will increase over the coming years.) A big advantage to SEPs is that administrative requirements are minimal when setting up and maintaining this type of plan.
SIMPLE IRA Plan:
Unlike the SEP plan, the SIMPLE IRA allows employees to contribute a percentage of their income each paycheck and requires you, as the employer, to contribute a percentage, as well. Employees can decide how much they want to contribute up to a maximum of $8,000 per year (going up each year by $1,000 until the limit becomes $10,000 in 2005). As with the other plans, there is a catch-up provision for those over age 50; an additional $1,000 can be contributed over and above the annual limit in 2003. Employee contributions are made by payroll deductions. You, as their employer, have to match employee contributions dollar for dollar up to three percent of the employee's compensation. Or, instead, you can opt to make a fixed contribution of two percent of compensation for all eligible employees.
In Summary...
Please keep in mind that space limitations do not allow me to describe all the advantages and disadvantages of each type of plan mentioned, nor does it allow me to cover the whole spectrum of plan choices that now exist for you. In next month's article, however, I will delve into the other types of plans that are available for you, such as Profit-Sharing Plans, Defined Benefit Plans, Defined Contribution Plans, Money Purchase Plans and more. Certainly, in the meantime, you can feel free to contact me with any questions.
These investment plans may seem, on the surface, like a long overdue way for small business owners to save for retirement. Perhaps, though, government is also hinting that we should take the notion of preparing for our own retirements seriously. Considering the rumored uncertainty of our Social Security system, we should heed this message being sent.
Perhaps, more than a half-century after Franklin D. Roosevelt's days, our elected officials are still recognizing his wisdom. Roosevelt once said, "True individual freedom cannot exist without economic security and independence." A modern interpretation of this might be, "Plan for your financial security now. Don't limit your personal freedoms in your golden years to whatever financial help government programs or your loved ones can afford to supply."
Carl Sanger is the owner of Serenity Wealth Management, LLC in New York. Carl is a Registered Investment Advisor and has been managing investment capital for over 11 years. He can be reached directly at (516) 541-5985 or toll-free at (866) 958-4626, by e-mail at carl@carisanger.com, or by visiting www.serenitywealth.com or www.carisanger.com.
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