Question

2-please advise and provide examples

Will, who is single and age 50, is employed as a full-time tax accountant at a local manufacturing company where he earns $85,750 per year. He participates in a pension plan through his employer. Will also operates a small tax practice in his spare time during tax season and has net Schedule C income of $8,550. He is interested in establishing and contributing to other retirement plans. What options are available to Will?

Will can establish

• Keogh Plan only

• SIMPLE Plan only

• Roth and/or traditional IRA only

• Keogh Plan or SIMPLE Plan only

• Keogh plan or a SIMPLE plan and a Roth and/or traditional IRA

Answer 1

Keogh plan only

keogh plans were established through legislation by Congress in 1962 and were spearheaded by Rep. Eugene Keogh. As with other qualified retirement accounts funds can be accessed as early as age 59 and withdrawals must begin by age 70.

Simple plan only

A Savings Incentive Match plan for Employees is a simple plan written arrangement that provides you, as the employer, and your employees, with a simplified way to make contributions to provide for retirement income. Plan assets grow tax free until distributed.

Roth and or traditional IRA only

The biggest difference between a Roth and a traditional IRA is how and when you get a tax break: The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year they are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.

The options available to will are. SIMPLE Plan only

If you are self-employed or own a small business, and you want to put away more than the individual retirement account (IRA) contribution limit each year, you have a couple of good options. Both the Simplified Employee Pension (SEP) plan and the Keogh plan are designed for small business owners and their employees. They are similar in some ways:

• Employees, as well as the business owner, may participate in these plans.
• All participants can deduct the amounts that they contribute from their taxable income each year.
• The money withdrawn after retiring is taxed as ordinary income.
• The account can be opened at just about any bank, brokerage, life insurance carrier, or mutual fund company.
• The money can be invested in any of a wide range of assets including stocks, bonds, mutual funds, and exchange-traded funds.

Both plans also have notably higher contribution limits than most retirement plans allow. For 2019, the maximum contribution for SEP accounts and most Keogh plans is the lesser of 25% of net earnings or $56,000. For tax year 2020, the limit goes to $57,000.

The Simple plan

As the name implies, and is fairly simple in structure and functions solely as a defined-contribution plan. That is, the participant automatically earmarks a percentage of gross income to be paid into a tax-deferred retirement account.

A Simple plan can be established by submitting Form 5305-SEP to the Internal Revenue Service (IRS). A business owner can get through the initial paperwork without the need for professional assistance.

Fewer Requirements

There are no annual reporting requirements.

Employers are not required to make a contribution to their employees plans in any given year. If they make a contribution, it must be made equally to every full-time employee who is at least age 21 and has worked for the company for at least 3 of the past 5 years.

The Simple plan  resembles an IRA in that participants can make contributions for the previous year up to the filing deadline, even if an extension has been granted. Participants cannot borrow from their plan balances.

The Keogh Plan

The Keogh plan is most popular with very high earners, such as physicians who are principals in medical practices and owners of unincorporated small businesses.