Khaas Baat : A Publication for Indian Americans in Florida


Retirement Plans for Small Businesses – PART I

By haren mehta


If you're self-employed or own a small business and you haven't established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future.

Tax advantages

A retirement plan can have significant tax advantages:

• Your contributions are deductible when made;

• Your contributions aren't taxed to an employee until distributed from the plan;

• Money in the retirement program grows tax deferred (or, in the case of Roth accounts,

potentially tax free).

Types of plans

Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or "qualified" (like 401(k)s, profit-sharing plans, and defined benefit plans).

Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company.

With IRA-based plans, your employees own (i.e. "vest" in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.

Which plan is right for you?

With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you'll need to clearly define your goals before attempting to choose a plan. For example, do you want:

• To maximize the amount you can save for your own retirement?

• A plan funded by employer contributions? By employee contributions? Both?

• A plan that allows you and your employees to make pretax and/or Roth contributions?

• The flexibility to skip employer contributions in some years?

• A plan with lowest costs? Easiest administration?

The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.


A SEP allows you to set up an IRA (a "SEP-IRA") for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don't have to make contributions every year, offering you some flexibility when business conditions vary. For 2017, your contributions for each employee are limited to the lesser of 25 percent of pay or $54,000. Most employers, including those who are self-employed, can establish a SEP.

SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $600 or more.


The SIMPLE IRA plan is available if you have 100 or fewer employees. Employees can elect to make pretax contributions in 2017 of up to $12,500 ($15,500 if age 50 or older). You must either match your employees' contributions dollar for dollar -- up to 3 percent of each employee's compensation -- or make a fixed contribution of 2 percent of compensation for each eligible employee. (The 3 percent match can be reduced to 1 percent in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each employee. A financial institution can do much of the paperwork. Additionally, administrative costs are low.

Profit-sharing plan

Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary — there's usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and "substantial and recurring," for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate (although you can require two years of service if your contributions are immediately vested). Contributions for any employee in 2017 can't exceed the lesser of $54,000 or 100 percent of the employee's compensation.

401(k) plan

The 401(k) plan (technically, a qualified profit-sharing plan with a cash or deferred feature) has become a hugely popular retirement savings vehicle for small businesses. According to the Investment Company Institute, 401(k) plans held $4.8 trillion of assets as of March 2016, and covered 52 million active participants. (Source:, accessed Nov. 15, 2016.) With a 401(k) plan, employees can make pretax and/or Roth contributions in 2017 of up to $18,000 of pay ($24,000 if age 50 or older). These deferrals go into a separate account for each employee and aren't taxed until distributed. Generally, each employee with a year of service must be allowed to contribute to the plan.

You can also make employer contributions to your 401(k) plan — either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2017 can't exceed the lesser of $54,000 (plus catch-up contributions of up to $6,000 if your employee is age 50 or older) or 100 percent of the employee's compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.

401(k) plans are required to perform somewhat complicated testing each year to make sure benefits aren't disproportionately weighted toward higher paid employees. However, you don't have to perform discrimination testing if you adopt a "safe harbor" 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees' contributions (100 percent of employee deferrals up to 3 percent of compensation, and 50 percent of deferrals between 3 and 5 percent of compensation), or make a fixed contribution of 3 percent of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.

Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they're still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven't become popular.

Defined benefit plan

A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30 percent of final average pay). As the name suggests, it's the retirement benefit that's defined, not the level of contributions to the plan. In 2017, a defined benefit plan can provide an annual benefit of up to $215,000 (or 100 percent of pay if less). The services of an actuary are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.

In general, defined benefit plans are too costly and too complex for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.

As an employer, you have an important role to play in helping America's workers save. Now is the time to look into retirement plan programs for you and your employees.

DISCLAIMER: Securities and Investment Advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC and a registered investment advisor. Fixed and/or Traditional Insurance Services may be offered through Capital Insurance & Asset Protection LLC, which is not affiliated with SagePoint Financial or registered as a broker-dealer or investment advisor.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

Haren Mehta, managing partner of Capital Insurance & Asset Protection in Tampa, can be reached at (813) 679-5204 or email [email protected]

Planning a Drawdown Strategy? Ask These Questions First


These 10 considerations from Merrill Lynch Wealth Management can help you put together a strategy to help make retirement income last.

For previous generations, retirement planning generally meant saving and investing for the time when you would no longer bring in an income. Nowadays, with people living longer, health-care costs rising, pensions disappearing and people increasingly embracing more active, adventurous post-career lives, retirees need to be a lot more deliberate about making their money last.

To create a customized “drawdown” strategy — a plan for using the savings you’ve accumulated — start by considering these questions.

1. What kind of life do I want in retirement?

Your income needs in retirement will be affected by decisions such as where you live, how much you travel and whether you continue to work. Couples may need to compromise or create parallel strategies. For example, a wife may be more concerned than her husband about running out of money during a long retirement — a realistic concern since studies show women generally have a longer life expectancy than men.

2. How much will I spend?

First, determine your basic expenses that must be covered: mortgage or rent payments, utilities, food, Medicare premiums and the like. Then consider your wants, such as travel, entertainment and gifts. Bear in mind that people tend to overestimate how much they can afford to spend in the early years of their retirement.

3. What strategies could help me make the most of my potential income?

Most experts suggest finding guaranteed monthly income sources to cover your basic expenses. Some of that may come in the form of a corporate pension or your Social Security benefits. But if these sources of income are not enough to cover your basic expenses, you may consider purchasing a lifetime income annuity to help fill the gap.

4. In what order should I consider tapping my assets?

You could choose to take money from taxable accounts first. Your long-term investment profits, on the sale of most investment assets held for more than one year, will generally be taxed at long-term capital gains rates — currently up to 20 percent. That option may look more attractive than making withdrawals from an IRA or 401(k) plan, now taxed as regular income at rates as high as 39.6 percent. But if investments in taxable accounts have appreciated substantially—or if you think they have great potential to grow — you could earmark those assets for your heirs.

5. Should I roll over my 401(k) accounts into an IRA?

You have five options to consider for the assets in a former employer’s retirement plan account, depending on your financial circumstances, needs and goals:

  1. Take a lump-sum cash distribution.
  2. Leave the money in the plan.
  3. Move it to your new employer’s retirement plan.
  4. Roll over all or part into a traditional IRA.
  5. Convert all or part to a Roth IRA.

Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgements. As with all investment decisions, there are potential benefits and disadvantages for each option. It is important to note that if you take a lump-sum distribution, move your assets to a Traditional IRA, or convert your assets to a Roth IRA, your decision is irreversible. These are complex choices and should be considered with care.

6. What about Social Security?

If you begin taking benefits at 62, the earliest allowable age for those born between 1943 and 1959, instead of waiting until full retirement age at 66, you lock in a permanent discount of about 25 percent on your monthly checks. If, on the other hand, you can wait until age 70, you may get nearly a third more than if you had started at full retirement age — and about 75 percent more than if you opted to begin benefits at 62. A further reason to consider electing a later start date for Social Security benefits is that you could ensure a higher monthly check for your surviving spouse.

7. How can I continue to potentially grow my assets?

“Retirees today have to view themselves as long-term investors,” says David Laster, head of Retirement Strategies at Bank of America Merrill Lynch. That could mean keeping part of your portfolio in stocks, which over the long term have outperformed bonds and other fixed-income investments, keeping in mind that past performance is not a guarantee of future results.

8. What about inflation?

The inflation rate for retirees can be somewhat higher than the rate for the population as a whole, according to the Bureau of Labor Statistics. This is largely because retirees spend more on fast-rising health expenses.

9. What about health costs and longevity risk?

“Even if you have a couple of million dollars in assets, a long-term care need such as Alzheimer's disease or another form of dementia could totally exhaust your wealth,” Laster says. Long-term-care insurance can help pay for care in instances such as these, which could wipe out an inheritance or assets for the surviving spouse.

10. Do I need to adjust my strategy?

Revisiting your drawdown strategy and making necessary course corrections along the way is a critical component in its potential long-term success. “Enjoying your wealth in retirement without fear of outliving your assets is a challenge for many retirees,” Laster says. “But by regularly reviewing your drawdown strategy, you can make the changes you need to.”

In the end, how you draw down your assets can help you determine whether or not you outlive them. Finding good answers to these and other questions now could be crucial in helping make sure your money lasts as you move toward your goals in a way that fits your unique circumstances.

DISCLAIMER: All annuity contract guarantees and payout rates are backed by the claims-paying ability of the issuing insurance company. All guarantees and benefits of the insurance policy are backed by the claims paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.

Annuities are long-term investments designed to help meet retirement needs. An annuity is a contractual agreement where a client makes payments to an insurance company, which, in turn, agrees to pay out an income stream or a lump sum amount at a later date. Early withdrawals may be subject to surrender charges, and taxed as ordinary income, and in addition, if taken prior to age 59 1/2 an additional 10% federal income tax may apply.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

This communication does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.

Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation (“BofA Corp.”). Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer and member SIPC.

Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation.

Investment products offered through MLPF&S and insurance and annuity products offered through MLLA:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

Are Not Deposits

Are Not Insured By Any
Federal Government Agency

Are Not a Condition to Any
Banking Service or Activity

MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation. Merrill Lynch Life Agency Inc. (MLLA) is a licensed insurance agency and wholly owned subsidiary of Bank of America Corporation.

© 2017 Bank of America Corporation. All rights reserved.


For more information, contact Merrill Lynch Financial Advisor Seema Ramroop of the 26301 U.S. 19 N., Clearwater, FL 33761 office at (727) 799-5621 or [email protected]


Year–End Tax Tips


It’s tax time again (almost)! Below are some tips and reminders that may help with your taxes before the yearend:


Deductions Subject to the Two Percent Limit. You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as:

Deductions Not Subject to 2 Percent Limit. Some deductions are not subject to the 2 percent of AGI limit:

Certain casualty and theft losses. This deduction applies if you held the damaged or stolen property for investment; gambling losses up to the amount of gambling winnings; losses from Ponzi-type investment schemes.


Note: There may be several tax law changes per the new tax reform proposals

There are various limitations, thresholds, & procedures for many of the deduction and filings. Please consult your CPA/Tax attorney/or tax consultant for proper guidance with the above subject matter.

Suresh Kumar, CPA, MBA is the Principal of Kumar Consulting, PA, a CPA & Consulting firm licensed in the states of FL, KS, & MO and maybe reached @ 813-421-5068 or [email protected]/

In accordance with IRS Circular 230, the above information is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.

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