Business
In this episode, Charles Musgrove and guest Taylor Hodges with Southern Capital discuss the different types of retirement plans. From the simple to the complex, the plans offer a variety of options relating to participation, amount of contributions, access to the cash prior to retirement and many more. The 2019 SECURE Act is also discussed about how it impacts the Retirement Plans. Highlights of the types of Retirement Plans:Solo 401K - $19,500 / $6,500 catchup + up to 25% of business income for matchingMax is $57,000 total contribution + $6,500 for employee catchupCan be used for spouse in business to double contribution amountsRoth option available, solo 401K usually more expensive to setup and maintainSEP IRA – 25% of income up to $57,000/yr.Matching contribution for all employees – very importantLLC is based on net income / S-Corp is based on salaryUsually inexpensive to setup and contributions are made by the employer onlySIMPLE IRA (Saving Incentive Match Plan for Employees) - $13,500 / $3,000Usually requires employer contribution or matchUsually two-year hold on the account for rollover and higher penalty for early withdrawal (25% instead of 10%)Less expensive to setup and maintain than 401K401K - $19,500 / $6,500 for 2020Multiple features and contribution structuresMust understand plan testing – cannot discriminateOwners and key employees cannot own 60% of plan assetsOwns 5%/ owns 1% and makes $150k +/ officer making $175k +Must be fixed in calendar yearSafe Harbor Provision – employer matching for employees and allows employer to avoid plan testing3 matching options:Non-elective – 3% flatBasic Match – 100% of first 3% / 50% of next 2%Enhanced Match – 100% of first 4%2020 IRA and Roth IRA contribution limits: $6k / $1K catchupIncome phase out for IRA deduction: single $65k-$75k / $196k-$206k MFJIncome phase out for Roth IRA: single $124k-$139k / $196k-$206k MFJArticlesThe Hierarchy Of Tax-Preferenced Savings Vehicles For High-Income Earners:https://www.kitces.com/blog/hierarchy-tax-preference-savings-vehicle-roth-high-income/Tax Brackets Resource:https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/2019 SECURE Act:https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/Don't Die Yet: New U.S. Law Will Muddle Estate Plans:https://www.kitces.com/blog/tax-rate-equilibrium-for-retirement-taxable-income-liquidations-rothconversions/