Ed Zollars, CPA wrote:

- quote -

Make that defined *contribution* plan...

--
Ed Zollars, CPA
Phoenix, Arizona

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Hawthorne13906[at]yahoo.com (Ed) wrote:

- quote -

Thanks for all the advice. Sounds like no simple solution.
Will meet with my CPA and give particulars.

Thanks,

Ed

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"Ed" <Hawthorne13906[at]yahoo.com> wrote:

- quote -

If you are older than the three empoyees, a 412i defined
benefit plan my yield a great deduction and pension. The
Department of Labor www.dol.gov lays out all the options and
requirements for small business retirement plans.

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"Ed" <Hawthorne13906[at]yahoo.com> wrote:

- quote -

Ed,

Welcome to the world of non-discrimination in favor of the
highly compensated. Generally not for a small company.

There are plans that could allow such a situation however
the setup and maintenance of such a plan is generally cost
prohibitive for a small company. ie. in the 5 figure range.

--
Regards,

Mark Rigotti

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"Ed" <Hawthorne13906[at]yahoo.com> wrote:

- quote -

There are several such plans, but they are widely different
and either, or neither, may fit with what you want to do.

A SIMPLE IRA plan allows employees to defer up to $8K of
their wages. The employer elects to match either 2% or 3%
depending on the options selected.

A SIMPLE 401(k) or traditional 401(k) can accomplish the
same thing.

However, you said YOU wanted to put a significant portion of
YOUR money into the plan. The problem is that most plans
tie the contribution to a percentage of earnings AND have
top heavy rules - these rules prohibit highly paid employees
from putting in too much money when lower paid employees
can't or don't participate.

If the circumstances are right, you might be a candidate for
a Defined Benefit Plan, but be careful. DBPs are strictly
enforced and don't fit everyone.

The best thing you can do is to meet with your tax or
financial advisor and go over the particulars of your
situation. I'm sure there is a plan out there that will
work for you.

Gene E. Utterback, EA

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Hawthorne13906[at]yahoo.com (Ed) wrote:

- quote -

All qualified pension plans are covered by
"nondiscrimination", "top heavy", and "minimum contribution"
rules, precisely to prevent you from putting a significant
portion of your salary into a pension fund without granting
significant benefits to the other employees.

These rules are complex and require professional assistance
to assure compliance. But generally, if your plan is
intended mainly to benefit yourself, you will find that it
requires you to make contributions to the plan on behalf of
your employees as well. Exactly how much will depend on the
details.

There are many businesses that offer to administer pension
plans for small businesses. I'd start by going shopping,
asking other local business owners what they have done and
asking local pension plan administrators what they can do
for you.

--
Chris Green

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Ed wrote:

- quote -

Well, yes but...

There are strings involved, and the limits on the
contribution are likely going to be lower than the limits on
the SEP contribution, at least if you have substantial
income.

You could elect a "pure" 401(k) with no match. That has the
advantage that the only funding that goes in is what the
employees decide to put in on their own. You, as the
employer, don't have to put a cent in for any employee.
However, your personal contribution may be drastically
limited if the "non-highly compensated" employees don't put
in enough. And, as well, the maximum that you could defer
in such a plan is much lower than the $40,000 that is
possible under the SEP (at least if you have enough income
to get to the $40K limit--it's possible the 401(k) might be
higher if your income is lower than that). And, if your
plan becomes top-heavy (very likely), you'll likely need to
make at least some contribution on behalf of the employees
if you plan to put anything back.

If the employees won't fund enough on their own and you are
willing to fund something for employees, you could establish
either a SIMPLE plan or a safe harbor 401(k). In both
cases, you have to put in at least some employer money,
either as a match for those that choose to defer or across
the board. The top heavy rules don't apply to the SIMPLE,
but they do apply to the 401(k). However, the 401(k) offers
you a larger deferral possibility.

You may also want to look at cross-tested defined benefit
plans. Those plans, while funded with employer
contributions, don't allocate the contribution equally to
all employees. So the benefits can be "skewed" in your
favor based on various criteria.

Finally, if you are significantly older than your employees,
a defined benefit plan might work best for you. That plan
funds for a benefit at retirement date, and the older you
are the more that effectively goes to your benefit.

If you have a significant amount you'd like to put back,
what you need to do is sit down with a employee benefit plan
design professional and go over your options. The proper
plan for a business varies dramatically based on the exact
makeup of your workforce and your specific goals for the
plan. The first key question--how much do you *want* to put
back for yourself? Answer that question, and the choices
become a lot clearer.

--
Ed Zollars, CPA
Phoenix, Arizona

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I am the owner and employee of a small company. There are
three employees besides myself. I want to be able to place
a significant portion of my salary into a pension plan.

I looked into setting up a SEP but it requires that the
company make equal % contributions for all employees. Is
there a plan that allows each employee to decide how much of
their salary they would like to place in their pension?

Thanks,

Ed

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