Common Questions Simplfied Employee Pension (IRA) Simple Plan (IRA) Simple 401k 401-k Profit Sharing & Money Purchase Plans Who can do this? All Businesses =< 100 Employees =< 100 Employees All Businesses   All Businesses   Description Small business owners can make tax-deductible contributions with this flexible plan that is easy to set up and maintain. If you have employees, you may be required to contribute for them as well. As an employer, you can offer a salary deferral plan for your employees easily and affordably. As a small business owner with no employees, you may be able to contribute more than other retirement plans. A flexible plan offering the highest level of employee pre-tax contributions, a wide range of employer contribution options, and an optional loan provision. Flexible plans with variable contribution options designed to reward long-term employees with tax-deferred growth — including an optional loan provision. Employer Eligibility You can contribute at any age if you are self-employed, a spouse or a business partner As an employer you can contribute for yourself and your employees at any age. Works well for companies with 25 or fewer employees. You can contribute at any age if you are self-employed, a spouse or a business partner Works well for companies with 25 or more employees who want to start a new plan or transfer an existing plan. As an employer you can contribute for yourself or your employees at any age. Works well for companies with 25 or more employees who want to start a new plan or transfer an existing plan. As an employer you can contribute for yourself or your employees at any age. Companies of any size can offer this plan. Whose Money? 2007 tax year: As a small business owner you can contribute up to 25% of your compensation or $45,000 – whichever is less. 2008 tax year: As a small business owner, you can contribute up to 25% of your compensation or $46,000 – which ever is less If you have employees, you may be required to contribute for them as well. Employer (Required): Either dollar-for-dollar matching up to 3% of compensation, or 2% of compensation to all eligible employees. For tax year 2007 and 2008 Employee: up to 100% of compensation or $10,500 ($13,000 age 50 and older). (No other plan allowed) Basic Employer contribution of 2% for all employee earning at least $5,000 OR 100% matching (of no less than) up to the first 3% of compensation. May use a combination of salary deferral and profit sharing contributions. - Profit Sharing: Up to 25% of compensation or $45,000 (2007)/$46,000 (2008) - Salary deferral: Up to 100% of compensation or $15,500 ($20,500 if over age 50) - Combination may not exceed $45,000 (2007)/$46,000 (2008) or if age 50 and older $50,000 (2007)/$51,000 (2008).   3% match or 2% all Employees Employer: Profit sharing and match: For tax year 2007: Up to 25% of compensation or $45,000 including employee contributions. For tax year 2008: Up to 25% of compensation or $46,000. Employee: Up to 100% of compensation or $15,500 ($20,500 age 50 and older). Combination may not exceed $45,000 (2007)/$46,000 (2008) or if age 50 and older, $50,000 (2007)/$51,000 (2008).   (See safe harbor option.) (No other plan allowed) Employer: Up to 25% of compensation or $45,000 in 2007/$46,000 in 2008. Profit sharing plans allow you to vary the contribution rate each year. A money purchase plan has a fixed contribution requirement that your business chooses when your plan is started. This contribution is required each year. Employee Eligibility – Who is in? Any part of 3 of the past 5 plan years. Age 21, exclusions Earns $5,000 x 2 years. Expect $5,000 current year Generally, age 21 and 1 year of service at 1,000 hours. Generally, age 21 and 1 year of service at 1,000 hours. 1,000 hours/year x 1 or 2 years (Possible Vesting Schedule) Funding (Title) IRA (special) IRA (special) Qualified Trust Employer Controls Qualified Trust Employer Controls Qualified Trust Employer Controls Testing NO NO NO, Deemed to satisfy the ADP, ACP and top heavy requirements YES YES IRS 5500- DOL Filings NO NO YES YES YES Employee Loans NO NO Allowable Allowable Allowable Early Withdrawal Penalties 10% IRS early withdrawal penalty if withdrawn before age 59 ½ unless exception applies. 25% IRS early withdrawal penalty during the first two years of the account. 10% thereafter if withdrawn before age 59 ½ unless exception applies 10% IRS early withdrawal penalty if withdrawn before age 59 ½ unless exception applies 10% IRS early withdrawal penalty if withdrawn before age 59 ½ unless exception applies. 10% IRS early withdrawal penalty if withdrawn before age 59 ½ unless exception applies. Required Withdrawals Must begin at age 70 ½ Must begin at age 70 ½ Must begin at age 70 ½ Must begin at age 70 ½ Must begin at age 70 ½ IRS Withholding None None   20% 20% Advantages Flexible Ease Ease, Controls & Loans Ease, Controls & Loans   Disadvantages Must include all employees Mandatory employer contribution, Limited TPA Costs,  5500 required Mandatory Limited, 5500 required TPA Costs,  5500 required * The SEP and 410k limits will be adjusted annually for inflation   Dennis P. Begley CLU ChFC 5115 Excelsior Blvd. Suite 202  St Louis Park,  MN 55416 612-308-6577 Page last up dated on Wednesday, September 17, 2008