The CPA's Guide to Retirement Plans for Small Businesses (2nd Edition)

The CPA's Guide to Retirement Plans for Small Businesses is designed to provide practitioners with knowledge, understanding and the tools needed to offer strategic advice on retirement plans. In over 500 pages with 26 chapters, you'll find discussion on statutory requirements, the legal structure of various plan types, as well as detailed information on plan design, establishment, monitoring, administration, correction of failures, and termination.

An extraordinary tool for CPAs in public practice, this book will help you to understand and conquer the complexities of small business retirement plans and enable you to secure the long-term financial security for your clients through sophisticated pension planning. This book is also an excellent resource for CPAs working in business and industry, for tax preparers and financial advisors, and for financial service organizations and corporate executives.

The book discusses in great depth and detail:

SIMPLE Plans

A savings incentive match plan for employees (SIMPLE) is a simplified retirement plan for small businesses that allows employees to make elective pretax contributions and requires employers to make matching or, alternatively, nonelective contributions. A SIMPLE may be part of a 401(k) plan or it may be used as an individual retirement account or annuity (IRA). When it is used as an IRA, it is known as a SIMPLE IRA. See comprehensive illustrations in Appendix A, “Plan Feature Comparison Charts.”

Contributions are limited to employee elective contributions and required employer matching contributions or nonelective contributions. No other contributions are permitted, except rollovers from another SIMPLE IRA.

SIMPLE IRA Plans

A SIMPLE IRA plan is an IRA that satisfies several additional rules and also includes a qualified salaryreduction arrangement.1 The plan under which contributions are made is called a SIMPLE to distinguish it from a SIMPLE arrangement established in the form of a qualified 401(k) plan (called a 401(k) SIMPLE), which are separately discussed below. When established in IRA form, many of the qualified plan rules do not apply.

Each employee decides whether to contribute and in that way reduce the amount of his or her compensation for tax purposes, as well. Contributions are made by the employer to an IRA, called a SIMPLE IRA, to which the only contributions that may be made are contributions under a SIMPLE IRA plan and rollovers or transfers from another SIMPLE IRA. No other types of contributions are permitted to be made under a SIMPLE.

Each contributing employee may choose whether to have the employer make payments as contributions under the SIMPLE IRA plan or to receive these payments directly in cash.

Employer Eligibility

A SIMPLE-IRA plan may be established by an eligible employer but generally must be the only plan maintained by that employer. The following types of business entities are eligible to establish a SIMPLE:

• Corporations
• Partnerships
• S corporations
• Sole proprietors (individuals who own the entire interest in an unincorporated trade or business operated for profit)
• Limited liability companies (LLCs)
• Limited liability partnerships (LLPs)
• Nonprofit and government entities
  

The term plan includes a qualified plan or annuity, a governmental plan, a tax-sheltered annuity or custodial account, a simplified employee pension (SEP), or a simple retirement account.

Example. Mega Incorporated and Merger Incorporated are both owned by Buddy. The entities are located in different states. They each adopt a separate SIMPLE. Notwithstanding that both Mega and Merger are treated as a single employer, the adoption of a second plan invalidates the adoption of both SIMPLE plans.

SIMPLE IRA Requirements

The general requirements for a SIMPLE established in the form of an IRA are the following:

1. The employer must be an eligible employer for the calendar year. Although a tax-exempt employer may not maintain a salary-reduction or elective SEP (SARSEP), it may establish a SIMPLE. A governmental employer may also establish a SIMPLE (if allowed by state enabling statutes).
2. The only contributions permitted are contributions under a qualified salary-reduction arrangement.
3. All contributions must be fully vested.
4. Eligible employees must have the option to participate.
5. Special administrative requirements must be satisfied (for example, each eligible employee must be notified at least 60 days before the election period that he or she may make or change a salaryreduction election and whether he or she may elect the financial institution that will serve as trustee or custodian of the plan).