We all know what this means, the ability to retire on one's pension and/or investments to sustain you during those "Golden Years" in which you can live out
your retirement dreams. While many of our clients are retired, we continue to work diligently with those that are still striving towards that goal.
When planning for retirement you should fully fund the tax-deductible and tax-deferred savings plans that are available to you as an individual and through
your employer. First on the list should be plans where the employer makes contributions and/or matches your contributions. Next should be any, IRA’s that you qualify for.
Definitions
- Roth Accounts: Designated Roth contributions are elective contributions that, unlike pre-tax elective contributions, are currently
includible in gross income. However, the investments grow tax free and earnings may be withdrawn tax free after age 59 1/2 if the account has been open 5 years, or if you are
disabled or after death.
- Simple Plans (simple IRA, simple 401k): Are plans for the small business owners with 100 or fewer employees with no other retirement plans in
place.
The following is a summary of retirement plans:
- 401(k) - A 401(k) plan is a type of tax-qualified deferred compensation plan for businesses in which an employee can elect to have the
employer contribute a portion of his or her cash wages to the plan on a pre-tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at
the time of deferral, and they are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W2. However, they are included as wages subject to social security,
Medicare, and federal unemployment taxes.
- The maximum employee contribution for 2021 is $19,500.
- Catch-up - if the employee is aged 50+, an additional "catch-up" contribution is allowed of $6,500.
- Withdrawals of contributions and earnings are subject to federal and most state income taxes.
- Simple 401(k) - A Simple 401(k) plan is a type of tax-qualified deferred compensation plan for small businesses with less than 100 employees
in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre-tax basis. These deferred wages (commonly referred to as elective deferrals) are
not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W2. However, they are
included as wages subject to social security, Medicare, and federal unemployment taxes. Under a Simple 401(k) Plan, an employee can elect to defer some compensation, but unlike a
regular 401 (k) plan, the employer must make either a matching contribution up to 3% of each employee's pay, or a non-elective contribution of 2% of each eligible employee's pay.
- Withdrawals of contributions and earnings are subject to federal and most state income taxes.
- Roth 401(k)- Business retirement account made with after tax dollars.
- The maximum employee contribution for 2021 is $19,500.
- Catch-up - if the employee is aged 50 and older, an additional "catch-up" contribution is allowed. The additional contribution amount for 2021 is
$6,500.
- The investments grow tax free and earnings may be withdrawn tax free after 59 ½ as long as the account has been open 5 years, or if you are disabled or after
death.
- SEP-IRA - Under a SEP, the employer makes contributions to traditional IRAs (SEP-IRAs) set up for each eligible employee. A SEP is funded
solely by employer contributions. Each employee is always 100% vested in (or, has ownership of) all money in his or her SEP-IRA.
- To establish a SEP
- The business can be any size
- Adopt Form 5305-SEP, a SEP prototype or
an individually designed plan document.
- Cannot have any other retirement plan (except another SEP) if the model Form 5305-SEP is used to establish the SEP.
- Total contributions to each employee's SEP-IRA cannot exceed the lesser of 25% of pay or $58,000 for 2021.
- Simple-IRA - is a tax-deferred retirement plan provided by sole proprietors or small businesses (fewer than 100 employees) who do not
maintain or contribute to any other retirement plan. If a SIMPLE IRA plan is adopted, employees can elect to defer part of their salary. Each employee is immediately 100% vested in (or "owns")
all contributions to his or her SIMPLE IRA. Contribution limits are:
- Employee - $13,500 for 2021. If the employee is age 50 or over, a "catch-up" contribution is also allowed. This additional catch-up contribution amount is:
$3,000 to a total of $16,500.
- Employer - Generally, a dollar-for-dollar match up to 3% of pay or a 2% non-elective contribution for each eligible employee.
- Keogh - A Keogh plan is a tax-deferred retirement plan designed to help self-employed workers or individuals who earn self-employed income
establish a retirement savings program. There are two different types of Keogh plans, the Profit Sharing and the Money Purchase plan. Under Keogh regulations, the Money Purchase contribution is
mandatory; you must make the same percentage contribution each year, whether you have profits or not. The Profit Sharing contribution can change each year. Individuals can contribute to both types of
plans in the same year. The contribution limits are the lesser of 25% of compensation or $58,000 for
2021.
- Traditional IRA - Individual Retirement Account, is a tax-deferred investment and savings account that acts as a personal retirement fund for
people with employment income. The maximum contribution is $6,000 annually in 2021 or $7,000 if age 50+. There are two primary types of IRAs: Regular and Spousal. Regular IRAs are designed for
individuals with earned income, while Spousal IRAs are designed for married couples in which only one of the spouses has earned income.
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Securities offered through GWN
Securities, Inc.,
Member FINRA/SIPC. 11440 N. Jog Road, Palm Beach Gardens, FL 33418. (561) 472-2700. E.J. Reppen and GWN Securities, Inc. are separate companies.