I am a small business owner (S-corp) w/ only myself & my wife as employees. I'm looking into SIMPLE IRA, SEP IRA, and 401(k) options. The first two are easy to administer & book. The 401(k) takes more time, and can be expensive, but I've learned of a fairly cheap option (401keasy -- $500 setup + $495/yr). So is the 401k worth it? I'm not sure.

Assume that my S-corp offers my wife and I a compensation package worth $40,000, comprising the base salary plus retirement benefits. Assume that we want to see $14,000 of that go into retirement accounts (IRA or 401(k)). The corp. can accomplish this with either the SIMPLE IRA or, starting 2002, with a 401(k) plan.

SIMPLE IRA option (assume self and wife each get $20K pkgs):

$19,420 base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $6,420 (max is $6500 in 2001).

Employer matches = $580 (~3% of $19,400)

2002 401(k) plan:

$16K base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $3K (new limit is 100% of base salary)

Employer matches & non-elective contributions = $4000 (because employer can match more than dollar for dollar (right?) and, starting 2002, can deduct contributions up to 25% of the employees' compensation)

In both cases, we end up with $14K in retirement savings. But because there are no FICA/employment taxes on employer matches and contributions (correct me if I am wrong), choosing the 2002 401(k) plan would result in the combined FICA/employment tax savings of 2*($19.42K-$16K)*0.153, or $1046.52.

If so, then the benefits of a 2002+ 401k plan may exceed the dollar costs of administering it. However, administering a 401k will probably take a lot more time (even w/ 401keasy, so it prob. still isn't worth it).

Any thoughts?

Eric

I am a small business owner (S-corp) w/ only myself & my wife as employees. I'm looking into SIMPLE IRA, SEP IRA, and 401(k) options. The first two are easy to administer & book. The 401(k) takes more time, and can be expensive, but I've learned of a fairly cheap option (401keasy -- $500 setup + $495/yr). So is the 401k worth it? I'm not sure.

Assume that my S-corp offers my wife and I a compensation package worth $40,000, comprising the base salary plus retirement benefits. Assume that we want to see $14,000 of that go into retirement accounts (IRA or 401(k)). The corp. can accomplish this with either the SIMPLE IRA or, starting 2002, with a 401(k) plan.

SIMPLE IRA option (assume self and wife each get $20K pkgs):

$19,420 base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $6,420 (max is $6500 in 2001).

Employer matches = $580 (~3% of $19,400)

2002 401(k) plan:

$16K base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $3K (new limit is 100% of base salary)

Employer matches & non-elective contributions = $4000 (because employer can match more than dollar for dollar (right?) and, starting 2002, can deduct contributions up to 25% of the employees' compensation)

In both cases, we end up with $14K in retirement savings. But because there are no FICA/employment taxes on employer matches and contributions (correct me if I am wrong), choosing the 2002 401(k) plan would result in the combined FICA/employment tax savings of 2*($19.42K-$16K)*0.153, or $1046.52.

If so, then the benefits of a 2002+ 401k plan may exceed the dollar costs of administering it. However, administering a 401k will probably take a lot more time (even w/ 401keasy, so it prob. still isn't worth it).

Any thoughts?

Eric

I am a small business owner (S-corp) w/ only myself & my wife as employees. I'm looking into SIMPLE IRA, SEP IRA, and 401(k) options. The first two are easy to administer & book. The 401(k) takes more time, and can be expensive, but I've learned of a fairly cheap option (401keasy -- $500 setup + $495/yr). So is the 401k worth it? I'm not sure.

Assume that my S-corp offers my wife and I a compensation package worth $40,000, comprising the base salary plus retirement benefits. Assume that we want to see $14,000 of that go into retirement accounts (IRA or 401(k)). The corp. can accomplish this with either the SIMPLE IRA or, starting 2002, with a 401(k) plan.

SIMPLE IRA option (assume self and wife each get $20K pkgs):

$19,420 base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $6,420 (max is $6500 in 2001).

Employer matches = $580 (~3% of $19,400)

2002 401(k) plan:

$16K base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $3K (new limit is 100% of base salary)

Employer matches & non-elective contributions = $4000 (because employer can match more than dollar for dollar (right?) and, starting 2002, can deduct contributions up to 25% of the employees' compensation)

In both cases, we end up with $14K in retirement savings. But because there are no FICA/employment taxes on employer matches and contributions (correct me if I am wrong), choosing the 2002 401(k) plan would result in the combined FICA/employment tax savings of 2*($19.42K-$16K)*0.153, or $1046.52.

If so, then the benefits of a 2002+ 401k plan may exceed the dollar costs of administering it. However, administering a 401k will probably take a lot more time (even w/ 401keasy, so it prob. still isn't worth it).

Any thoughts?

Eric

I am a small business owner (S-corp) w/ only myself & my wife as employees. I'm looking into SIMPLE IRA, SEP IRA, and 401(k) options. The first two are easy to administer & book. The 401(k) takes more time, and can be expensive, but I've learned of a fairly cheap option (401keasy -- $500 setup + $495/yr). So is the 401k worth it? I'm not sure.

Assume that my S-corp offers my wife and I a compensation package worth $40,000, comprising the base salary plus retirement benefits. Assume that we want to see $14,000 of that go into retirement accounts (IRA or 401(k)). The corp. can accomplish this with either the SIMPLE IRA or, starting 2002, with a 401(k) plan.

SIMPLE IRA option (assume self and wife each get $20K pkgs):

$19,420 base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $6,420 (max is $6500 in 2001).

Employer matches = $580 (~3% of $19,400)

2002 401(k) plan:

$16K base salary

Take home pay = $13K - income taxes - FICA on base salary

Elective deferral = $3K (new limit is 100% of base salary)

Employer matches & non-elective contributions = $4000 (because employer can match more than dollar for dollar (right?) and, starting 2002, can deduct contributions up to 25% of the employees' compensation)

In both cases, we end up with $14K in retirement savings. But because there are no FICA/employment taxes on employer matches and contributions (correct me if I am wrong), choosing the 2002 401(k) plan would result in the combined FICA/employment tax savings of 2*($19.42K-$16K)*0.153, or $1046.52.

If so, then the benefits of a 2002+ 401k plan may exceed the dollar costs of administering it. However, administering a 401k will probably take a lot more time (even w/ 401keasy, so it prob. still isn't worth it).

Any thoughts?

Eric

Under HIPAA's later-acquired dependent rules, a plan must offer a special enrollment period if the plan offers dependent coverage and a participant "gains" a dependent. Anyone have any thoughts/experience where a multiemployer plan "used to" restrict retiree's dependent's coverage to spouses who were married to the retiree for at least one year prior to retirement (much like a pension J&S rule). I don't think that the plan can continue this practice, and if it offers retiree dependent coverage, must eliminate the "one year of marriage prior to retirement" rule. Any contrary thoughts? Thanks!

Does anyone have or know of a report that splits realized and unrealized g/l?

I have a client who wants to merge his mppp into his 401(k) p/s plan without 100% vesting of the mppp account balances. With the new 415 limits, many more clients will probably want to do the same. I'm sure that the mppp can be merged without 100% vesting of account balances vs. termination then merger which requires 100% vesting, but can't find a citation. Can anyone help?

If an employer promises to pay a termining employee $5,000 per month for the lesser of 20 years or the lifetime of the terminating employee. Assume it is now non-forfeitable.

Is there any guidance regarding the interest rates or mortality tables to be used to determine the present value for FICA tax purposes?

If an employer promises to pay a termining employee $5,000 per month for the lesser of 20 years or the lifetime of the terminating employee. Assume it is now non-forfeitable. Is there any guidance regarding the interest rates or mortality tables to be used to determine the present value for FICA tax purposes?

We have a client (an S Corporation) who has adopted a 401(k) plan and is considering sharing employees with a related partnership, of which the S Corp owns 20% and the remainder is owned by unrelated individuals. These two companies would not be considered a controlled group or an affiliated service group. The partnership does not have a 401(k) plan. Is the partnership required to adopt a 401(k) plan to cover these individuals if they pay them directly?

Employer offers signing bonuses to new employees but bonuses are not paid until after employee completes 90 day introduction period. For an employee hired in November, 2001, who completes her introductory period in February, 2002, would the signing bonus be included in her 2002 income, or the year prior?

If an employee terminates, is paid out & forfeits a portion of his/her company match, and then returns to the company with in 5 years, our plans give him the option to "buy back" that forfeited amount, using his own money.

It would seem to us that that buyback is then after tax money, & would not be taxed again upon distribution.

I'm having a hard time substantiating that. Is anyone able to confirm that (or refute?) References to IRS code appreciated.

thanks.

Grant

When the owner of a single participant Money Purchase Pension Plan dies, how long can the beneficiary keep the plan in tack without starting distributions?

I am trying to get a little clarification on the new IRA rollover rules. I am mostly interested in how they will effect simples. I know that the new code states that you cannot roll a simple into a plan but what is stopping someone from rolling into an IRA and then into a plan. I am aware of the two year wait to get out of the simple but is there any reason this can't be done? I am confused on what the government's intent was with regards to this issue.

Minimum Distributions are calculated based on the account balance as of the latest valuation date in the prior year (the latest valuation ending in the calendar year prior to the distribution calendar year). There are adjustments to this balance where the plan year is not calendar and there is no 12/31 valuation. My interpretation is that you add any contributions allocated after the plan year end but within the calendar year end. This would include contributions allocated for the plan year ended AND contributions for the next plan year allocated within the calendar year. For example, a 401(k) plan with a plan year ending 8/31 and semi-annual valuations. My understanding is the 8/31 balance would be increased by any year-end allocations for that plan year (even if made after the calendar year ends) AND by contributions allocated from 9/1 - 12/31 for the next plan year. This adjusted 12/31 value would aslo be adjusted by distributions made from 9/1-12/31.

Agree, disagree? Thanks

Plan match provision calls for 50% match, increasing to 100% after employee has deferred for 4 calendar quarters.

How to test under 401(a)(4)? Brf match test with two groups, those at 50% and those at 100%?

Other issues or problems with this? I don't like it, but am having trouble pinpointing the faults.

May an employer pay 100% of the group health premium for full-time employees, 0% for their spouses and children, and 50% for part-time employees? Also, may an employer vary the contribution percentage for full-time employees based on years of service?

ERISA defines the term "administrator" in section 3(16)(A).

ERISA defines the term "named fiduciary" in section 402(a)(2).

I assume that everytime the term "plan administrator" appears in the law or the code that this means the ERISA 3(16)(A) administrator.

Every legal document I have ever seen separately defines who is the plan administrator and who is the named fiduciary.

What is the difference between these two? It seems to me that the administrator would be a fiduciary and from reading about the duties of the named fiduciary, it appears that the named fiduciary might be the plan administrator.

Being exempt from Title I of ERISA, what are the requirements for SPDs for benefit plans of governmental employers?

A company offers fully-insured medical coverage to certain classes of its employees.

The company pays some of the medical premiums and the remainder of the premiums are withheld from covered employees via pre-tax withholdings (cafeteria plan).

I realize that the cafeteria plan must pass three types of discrimination tests ....1) Eligibility test 2) Benefits test and 3) Concentration test.

I understand what the Eligibility test & Concentration test are ..... BUT What is the Benefits test ? How does the Benefits tests work? .... and what is meant by the word "benefits"?