Retirement Plans allow the Employer and the Employee the opportunity to make pre-income tax contributions to a Tax Deferred Retirement Account. The type of Retirement Account is determined with a Cost Benefit Analysis depending on your desired goals.
Types of Retirement Plans
IRAs (Individual Retirement Arrangements) allow you to make tax-deferred investments that strive to provide financial independence when you retire.
Individual Retirement Arrangements (IRAs) (Pre-tax contributions, but are taxable as income upon distribution in retirement)*
Individual Roth IRAs (Post-tax contributions, but are tax free upon distribution in retirement)**
*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
**The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Retirement Plans that may provide special benefits to a Sole Proprietor or Family Owned Business
A Profit Sharing Plan is a defined contribution plan established by an employer. Benefits (Employer) Tax Deduction - The employer can claim a deduction on the business tax return for contribution made to participants. (Employee) Non-Taxable - Employer contributions are not considered taxable income to employees for the year in which the contribution is made.
Defined Benefit Plans (A defined benefit plan is an employer sponsored retirement plan providing a predetermined annual income benefit to the participants. Once the retirement benefit objective is set, the employer contributions needed to meet the benefit objective are determined actuarially on an annual basis. The benefit objective is the controlling force and the contributions are simply a factor of that controlling force. If the investments perform poorly, the employer must contribute an increased amount in subsequent year to counteract the poor investment performance to ensure the plan will be able to satisfy the predetermined benefit objectives.)
A money purchase plan is a type of defined contribution plan that is established by the employer. Benefits (Employer) Tax Deduction - The employer can claim a deduction on the business tax return for contributions made to participants. (Employee) Non-Taxable - Employer contributions are not considered taxable income to employees for the year in which the contribution is made.
Small Business Retirement Plans
SIMPLE IRA Plans (Low cost Savings Incentive Match Plans for Employees that allows both employee and employer pre-tax contributions)
SEP Plans (Low cost, Simplified Employee Pension, that allows only employer contributions)
SARSEP Plans (Low Cost, Grandfathered, Salary Reduction Simplified Employee Pension) that allows both employee and employer pre-tax contributions)
Under a Payroll Deduction IRA, employees establish an IRA (either a Traditional or Roth IRA) and authorize a payroll deduction amount for it. A business of any size, even self-employed, can establish a Payroll Deduction IRA program.
Retirement Plans that may benefit a Large Company or Charity
A 401(k) Plan is a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts plus they allow employers to make contributions to employees accounts. Some 401K Plans allow loans
403(b) Plans (A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities.)
Governmental Plans (There are potential tax advantages for participants that choose to defer receiving compensation in a 457(b) or a 409A plan)
457 Plans (Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC Section 501.)
409A Nonqualified Deferred Compensation Plans (Section 409A applies to compensation that workers earn in one year, but that is paid in a future year. This is referred to as nonqualified deferred compensation. This is different from deferred compensation in the form of elective deferrals to qualified plans (such as a 401(k) plan) or to a 403(b) or 457(b) plan.)