section 1 - The American College Online Learning Center

. Nonqualified deferred compensationc. SIMPLEs(1) Generally there are no limits on salary deferrals in deferred compensationplans (except for 457 plans).(2) The plan may offer a matching contribution.(3) Income tax treatment from the participant’s perspective is similar to atax-deferred plan as benefits are not taxed until distributions are made.(4) Plans may offer participants investment options.(5) Benefit security is definitely a consideration as the participant is considereda general creditor of the corporation and benefits may not be paid in full ifthe company has financial problems.(6) Check the plan to see when benefits may be available.(7) Planning Point: Nonqualified plan benefits cannot be rolled over to anotherplan.(1) Have lower salary deferral contributions than 401(k) plans(2) The employer can only make a limited matching or nonelective contributionbut cannot make both.(3) IRA accounts are established for each participant and participants cantransfer assets at any time.(4) Planning Point: In a SIMPLE, the participant has a lot of investment andwithdrawal flexibility.(5) Plans cannot allow participant loans or provide for Roth elections.(6) Participants have withdrawal flexibility; however, withdrawals are taxableincome and may be subject to the early withdrawal penalty tax.6. Plan options for the self-employed (with no employees) (Video: What types of plansshould a small business owner consider for retirement savings? Littell, Tacchino)a. The rules are generally the same for incorporated and unincorporated entitiesexcept for the calculation of the maximum contribution for the businessowner of anunincorporated entity. As most sole proprietors operate as unincorporated entities,let’s focus on the limits in that situation.b. SEP—easy to establish and maintain(1) Funded with IRA accounts (not a comingled trust)(2) Less documentation than with qualified plans(3) Easy to establish and terminate the plan(4) Maximum contribution for an unincorporated businessowner is the lesser of(a) 20 percent of Schedule C earnings reduced by the Social Securitydeduction or(b) the 415 limit—which is the lesser of earnings or $50,000 (indexedlimit in 2012)c. A 401(k) plan offers the sole proprietor with limited income the ability to make alarger contribution to the plan.(1) Just like a SEP, the owner can contribute 20 percent of Schedule Cearnings reduced by the Social Security deduction.3.12