Planning for Retirement Needs

Planning for Retirement Needs SEPs, SIMPLEs, and 403(b) Plans Chapter 6

SEP SIMPLE 403(b) plan Chapter 6: SEP, SIMPLE, 403(b)

Eligibility 21 3 years of service in last five with $500 (2007) Full and immediate vesting Discretionary contributions Allocation as level percent of compensation or integrated with Social Security (no other choices) SEP

Salary deferrals (only in grandfathered-pre ’97 plans) Simple document (IRS form available) and no reporting Funded with IRAs (no loans, life insurance) SEP

Employer cannot maintain any other tax-advantaged plan Employer has 100 or fewer employees Eligibility—must cover those who earn $5,000 in two prior years Defer $10,500 (for 2007) Additional $2,500 deferral for those over age 50 SIMPLE

Employer contribution must be either 100 percent match on first 3 percent deferral (reduce to 1 percent) 2 percent nonelective for all eligible employees Funded with IRAs no loans no life insurance SIMPLE

Only established by 501(c)(3) and public schools Can’t cover independent contractors Funded with annuities and mutual funds 403(b) Plans

Loans In-service withdrawals upon financial hardship Must cover employees willing to defer $200 403(b) Plans

Same salary deferral limit as 401(k) Total contributions subject Code Sec. 415 dollar limit Additional catch for 15 years of service 403(b) Contribution Limits

Not covered by ERISA Relationship between employee and service provider 403(b) Plans Only with Employee Salary Deferrals

Covered under ERISA Must meet qualified plan coverage requirements 403(b) Plans withEmployer Contributions

Survey, Inc. wishes to establish a tax-advantaged plan for its employees. The company is relatively new, and profits fluctuate wildly. The employer would like to reward employees when the company does well, and is somewhat concerned that the company has no retirement plan at all, which might make it difficult to attract experienced people to work there. The company is concerned about the costs of maintaining the plan. Which Plan is Best?

Near Retirement, Inc. is a closely-held company whose original owners are about to retire. The company has a defined-benefit pension plan, which has already served the purpose of providing benefits for the current owners. Assume that the owners do not have family members interested in the business, the employees have worked for them for a long time, and that the employees are potential buyers of the company. Which Plan is Best?

Stable, Inc. has had a modest money-purchase pension plan for a long time. Participation in the plan precludes employees from participating in a tax-deferred IRA. The company realizes that the plan is not adequate but can’t afford additional retirement benefits. Which Plan is Best?

Teeny-tiny Corp. has four employees. The owner realizes that competing employers are sponsoring 401(k) plans. To compete with the other employers the owner would like a similar plan but is not willing to pay the administrative expenses associated with that type of plan. Which Plan is Best?

A SEP may provide that participants only become fully vested after completion of 5 years of service. An employer does not have to make a contribution to a SEP for a part-time employee earning $5,000 with 4 years of employment. A sponsor of a SIMPLE can make contributions on a discretionary basis. The assets of a 403(b) plan may be invested in any type of investment option available to a qualified plan. True/False Questions

A sponsor of a SIMPLE can make contributions on a discretionary basis. The assets of a 403(b) plan may be invested in any type of investment option available to a qualified plan. True/False Questions

Planning for Retirement Needs