section 1 - The American College Online Learning Center

(2) Exception for 403(b) plan participants(a) Contributions to a 403(b) plan must be combined with contributionsto all other tax-advantaged plans sponsored by an entity that anindividual owns at least 50% under Code Sec. 415(c). This includesself-employment income. This means that 403(b) contributions pluscontributions to a SEP or other plan for self-employment incomecannot exceed $50,000 (2012)(3) Related employers(a) The controlled group and affiliated service group rules requirerelated employers to be treated as one employer for purposes ofthe maximum contribution to the plan.(b) Example: Individual owns one business and has self-employmentincome from another source or a close family member owns abusiness.8. Plan options for the small businessowners (with employees)a. The primary issue is that with many plan designs if a large contribution is made forthe owner, large contributions are required for eligible employees as well.(1) Example: Contribute 20 percent for the businessowner in a SEP and theemployer generally has to contribute 20 percent for other employees.b. A solution can be a cross-tested profit-sharing plan as larger contributions canbe made for an older businessowner as long as the other employees are ingeneral somewhat younger.(1) Example: Contribute 20 percent for the businessowner who is 55 andcontribute 5 percent for other employees who have an average age of 35.c. Another approach is a 401(k) plan that does still allow larger contributions than forother employees.(1) Example: The 60-year-old owner contributes $22,500 as a salary deferraland makes a 3 percent safe-harbor contribution for other employees.d. A similar option is a SIMPLE plan; however, this plan has lower contribution limitsCalculated using the “IRA Savings Calculator for Tax Deferral Comparison” at the website“Free-Online-Calculator-Use.com”.LO 3-3-2: Choose between a tax deductible and tax-exempt retirementaccount1. Planners must help a client choose between tax deductible and tax-exempt plans.a. Should I make a Roth election in my 401(k) plan?b. Should I contribute more to my 401(k) plan or contribute to a Roth IRA?c. Should I convert my traditional IRA into a Roth IRA?d. The answer depends on:(1) Current vs. future tax rates(2) The required minimum distribution rules(3) The desire for tax diversification(4) The tax treatment desired for heirs2. The way you compare makes a difference3.14