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Frequently Asked
Questions
- What is the best retirement plan for my company?
Choosing the best plan depends on your goals. First decide on your budget, i.e. how much can you afford to contribute (including contributions for eligible employees) and then decide the purpose of the plan. Is it meant to be a true retirement/employee
benefit plan or a vehicle for the owners to shelter their income. If the latter is your goal (particularly in a small company) consider an age weighted profit sharing plan, a target benefit plan or a
defined benefit plan, otherwise consider a profit sharing
plan or a 401(k) plan. For more information see the article Choosing the Correct Plan.
- When must I make the contribution to my company retirement plan?
There are two deadlines to consider. First for purposes of deductibility the contribution must be made by the due date, including extensions, of your company's tax return. To satisfy IRS rules on funding, if your plan is a pension plan (defined benefit,
target benefit or money purchase) the contribution must be made by 8 1/2 months after the end of the plan year (which may be different than your company's tax year).
- Should I buy life insurance in my retirement plan?
If you have a need for life insurance either personally or for business the least costly way to buy the insurance is through your retirement plan since the premiums are deductible. There are also many business and estate planning strategies that use a re
tirement plan to purchase life insurance while still maintaining the tax exempt status of the life insurance proceeds.
- What is the most I can contribute to my 401(k) plan?
If you are not a more than 5% owner of the business and your compensation is less than $80,000 you can generally contribute the lesser of 25% of your compensation or $10,500 (2000). If your employer makes a matching contribution and/or a discretionary
profit
sharing contribution that limit may be reduced. If you are a more than 5% owner or your compensation is more than $85,000 the amount you can contribute depends on the contributions made by the first group of employees above, the contributions made by the
employees in your group (owners and high compensation), and the general rule above.
- Can my company have more than one qualified retirement plan?
Yes. There is no limit on the number of plans your company may have. The limits apply only on the total benefits the plans provide to participants. IRS regulations set forth those limits depending on the types of retirement plans your company sponsors.
- If I own more than one business or professional practice can I have a retirement plan in one but not the other(s)?
The Internal Revenue Code sets forth specific rules in "controlled group" situations as above. These rules are extensive and complex but under certain circumstances it is possible to have a retirement plan in one business in a commonly controlled group of businesses but not the other(s).
- One of my employees would rather take the cash than participate in my profit sharing plan. Is that allowed?
Generally that can only be done in a "cash or deferred arrangement," a type of 401(k) plan. Any other plan offering that option could disqualify the plan.
APS Pension and Financial Services, Inc.
20 Crossways Park North, Suite 410 Woodbury, NY 11797
Phone: (516) 228-8444 Fax: (516) 228-8457
E-mail: aps@apspension.com
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