retirement plans

Employer Sponsored Plans

Designated Roth Account

A Designated Roth Account is a separate account created under a 401(k), 403(b), or 457(b) plan. Money is Rolled over to this account from taxed income.

Tax Benefits: Qualified distributions are tax-free.

SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE IRA is a traditional IRA that allows for employer contributions, as well as employees, via paycheck withholding (or otherwise). These plans are ideally suited to small businesses, since they are easy and inexpensive to establish and have no filing requirements.

Contribution limit for 2016: $12,500 (plus a $3,000 catch-up provision for those age 50+).

Tax Benefits: Like traditional IRAs, contributions may be made with pre-tax dollars and investment earnings are tax-free until distributions are taken.

SEP Plan

A Simplified Employee Pension Plan is a traditional IRA that is owned by the employee but is set up by the employer to allow them to contribute and receive tax benefits for their contributions. A SEP Plan can also be set up by self-employed individuals. These plans are ideally suited to small businesses, since they are easy and inexpensive to establish and have no filing requirements.

Contribution limit for 2016: The lesser of $53,000 or 25% of salary. Catch-up provisions do not apply.

Tax Benefits: Contributions may be made with pre-tax salary deferrals and any earnings are tax-free until distributions are made.

401(k)

A 401(k) is an employer-sponsored defined contribution plan, into which you (and/or your employer) can make current tax deductible payroll withheld contributions.

Contribution limit for 2016: $18,000 (plus $6,000 catch-up provision for those age 50+).

Tax Benefits: Your contributions are made with pre-tax dollars, and you don’t pay taxes until you withdraw funds. If you take a distribution pre-age
59 ½, you will be subject to a 10% non-deductible penalty, in addition to incurring taxes.

Note: Individual 401k or Roth 401k’s are available for owners with no employees, and don’t require reporting like traditional 401k or Roth 401k Plans.

403(b)

A 403(b) plan is a tax-sheltered annuity (an annuity is a series of regular payments made for more than a year) that is offered to employees by non-profit groups, public schools, and other tax-exempt organizations. It is similar to a 401(k) and distributions are taxable, but contributions are generally never deductible.

Contribution limit for 2016: Similar to 401(k) plans, but vary based on salary.

Tax Benefits: Contributions may be made with pre-tax dollars and income from investments accumulate tax-free until distribution.

Safe Harbor 401k Plan

A traditional safe harbor is a plan that is designed to pass the Actual Contribution Test without the need for numeric testing. As a general rule, a 401k plan must satisfy certain non-discrimination requirements. The Small Business Job Protection Act of 1996 provided 401k plans with alternative, simplified methods of meeting the non-discrimination requirements. 401k plans that adopt one of these alternative methods are referred to as “safe harbor 401k” plans.

Contribution limit for 2016: Contributions from employer and employee may not exceed $53,000 per year (plus a $6,000 catch-up provision for those age 50+).

Tax Benefits: Employer contributions are tax-free income for the employee and contributions may be made with pre-tax dollars and income from investments accumulate tax-free until distribution.

Profit Sharing Plans

Profit sharing plans are established by employers and only contributed to by employers. Contributions are voluntary and discretionary.

Contribution limit for 2016: $53,000.

Tax Benefits: Employer contributions are tax-free income for the employee, accumulate tax deferred but taxable when withdrawn.

Money Purchase Plans

In a Money Purchase Plan, employers must make set contributions. Employees may or may not contribute.

Contribution limit for 2016: 25% of your salary, may not exceed $53,000.

Tax Benefits: Employer contributions are tax-free income for the employee, and employee contributions are tax deductible and accumulate tax deferred but taxable when withdrawn.

Defined Benefit Plans

Defined Benefit Plans are traditional pension plans established by employers. Contributions are made by employers and allow for substantially increased deductions but are costly and complex. They provide for a specific benefit at retirement. Distributions are typically annuitized.

Contribution limit for 2016: Based on funding a maximum benefit of $210,000 per year upon retirement. Subject to age, income, and actuarial certification.

Tax Benefits: Employer contributions are tax deductible and are tax-free income for the employee and funds accumulate tax deferred but taxable when withdrawn.

Cash Balance Plans

This is a hybrid plan that functions as a Defined Benefit Plan, with typically greater contribution levels but maintains individual account balances more characteristic of Defined Contribution Plans.

Contribution limit for 2016: Can exceed $200,000 per year.

Employee Stock Ownership Plans (ESOPs)

An ESOP is a type of 401(a) where contributions are not made with money but with securities.

Tax Benefits: Contributions to ESOPs are generally nontaxable. Tax credit for 2016 is $1,070,000.

401(a)

A 401(a) is a defined contribution plan (employers contribute a set amount) generally offered to employees of the federal government, state governments, or Indian tribal governments, although private employers can establish them as well. Distributions are generally taxed.

Contribution limit for 2016: $18,000 (plus a $1,000 catch-up provision for those age 50+).

Tax Benefits: (Now) The details of contributions and distributions vary from plan to plan, but contributions may be made with pre-tax dollars.

457(b)

A 457(b) is a deferred-compensation plan that allows employees to contribute through payroll deductions on a pre-tax basis. It is only offered by state and local governments and some tax-exempt organizations. Distributions are taxed.

Contribution limit for 2016: $18,000 (plus a $1,000 catch-up provision for those age 50+).

Tax Benefits: Like a 401(k), contributions may be made pre-tax and any earnings are tax-deferred.

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Michael G. Kirwan, CLU, ChFC is an Independent Advisor Representative (IAR) of BCG Securities. Securities offered through BCG Securities, Inc., member FINRA & SIPC. 856-393-1950.
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