Question

Robert "Bubba" Breaux, 32, owns and operates a po boy shop in New Orleans, called Ya Mama's Po Boys. It is a family business that sells authentic New Orleans fare, just like "ya mama would serve" assuming she was from New Orleans. Bubba wants to establish a retirement plan so he can save for his retirement and the retirement of his employees on a tax-deferred basis. He has recruited you to assist in making a plan selection

Bubba only wants to contribute in years that he makes a profit and does not want to incur much if anything on administrative expenses. Since the employees of Ya Mama's are all family members, Bubba is happy to contribute on behalf of the employees when the restaurant is doing well

A. Based on Bubba's objectives, what type of retirement plan is most suited for his needs?

B. Why might you recommend that Bubba utilize a qualified profit sharing plan with a CODA in lieu of the suggestion in question 1? (if you suggested a profit sharing plan with a CODA for question 1, reconsider)

C. Bubba employs the following individuals. Which employee may he exclude if the plan was SIMPLE, SEP or 401(k) profit sharing plan?

Name	Age	Years of Service	Full-Time/Part-Time (<1,000 hours)	Annual Income
Bubba	32	13	Full-Time	$35,000
Mama	49	4	Full-Time	$35,000
Trey	22	2	Full-Time	$32,000
Chad	28	4	Part-Time	$26,000
Rice	18	1	Part-Time	$12,000

Thank You!

Answer 1

(A) Answer :- Retirement plan most suited to his needs :-

The best retirement plans available are -

1. Defined contribution plan

2. IRA plan

3. Solo 401 (K) plan

4. Pensions

5. Guaranteed income annuities

6. The federal government plan

7. cash balance plan

8. cash value life insurance plan

Based on his objective the best plan is :-

Profit sharing plan :-

Some Companies offer a profit sharing plan to their workersas an incentive for them to be productive so that they can both help them to boost the profits of the company.

This is another hand off benefit in the sense that you cant contribute to it. only the employer can . But here is the catch your employer has discretion whther to contribute year to year. However the government does insist that contribution be recurring and substantial.

Is is given that Bubba only want to contribute when he makes profit and he contributes more if his company making more profit hence it is contributing on the basis of profit earnings.

(B) Answer :-

Virtually all retirement plan offers a tax advantage, whether it's available upfront during the saving phase or when you are taking withdrawals.

For example - 401(K) contribution are made with pre tax dollars, which reduces your taxable income. IRA in contrast are funded with after tax dollars but withdrawals are tax free.

Some retirement saving plan also include matching contribution from your employer, such as 401(K) plan while others dont. When trying to decide whether to invest in 401(K) or IRA than go with the 401(K) if you get a company match- or both if you can oafford it.

(C) Answer :-

Which Employee may be exclude if plan was SEP :-

Eligibility criteria for SEP Plan :-

An Employee must be at least 21 years old and has worked for the employer in any 3 of the preceding 5 Financial year.

On the basis of above eligibility criteria Mr. Trey (22) and Mr. Rice (18) has been excluded for the SEP plan.

Which Employee may be exclude if plan was SIMPLE :-

Eligibility criteria for Simple plan :-

Employee must be eligible if they receive at least $5000 during any two preceding year and are expected to earn compensation at least $5000 in current year. There are no minimum participation required.

On the basis of above eligibility criteria Mr. Rice (18) has been excluded for the simple plan because he employed for only one year and not getting $5000 for at least two preceding year.

Which Employee may be exclude if plan was 401(K) Profit sharing :-

Eligibility criteria for 401(K) plan :-

The employee must have 1 year of experience and shall attend the age of 21.

On the basis of above eligibility criteria Mr. Rice (18) has been excluded for the 401(K) plan because he employed for only one year.