• 401K Plans
• 403B Plans
• SEP Plans
• Simple Plans
• Profit Sharing Plans
• Money Purchase Plans

 401k Plans

Self Employed
Simple
Traditional

Self-Employed 401K Plans

Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, small businesses - whose only employee is the owner or the owner and spouse - can open and contribute to a Self-Employed 401K plan. Finally, a great tax break strictly geared to the benefit of small business owners. On top of the tax break, the Self-Employed 401K offers other benefits for cash-strapped small business owners.

Rather than raiding their 401K to keep the business alive - and paying a big penalty to the IRS - small business owners can take a tax-free loan and keep their hard earned money working for them. This plan offers small business owners all the benefits of a big company 401K, without the administrative expense and complexity.

It doesn't matter if you started your business last week or several years ago. Any single business owner, an independent contractor with 1099 income, freelancer, sole proprietor, or in a partnership, Limited Liability Company (LLC) or corporation, can tap into the full benefits of the Self-Employed 401K.

• You may contribute up to $40,000 to the plan.
• Your contributions are fully-tax deductible and are based on compensation or earned income.
• You can roll over assets from other plans or IRA's into your Self-Employed 401K.
• You can take a loan that is tax-free and penalty free from your Self-Employed 401K - up to the lesser of 50% or $50,000 of your account balance.

Simple 401K Plans

A simple 401k is a type of 401K plan Limited to employers who have had 100 or fewer employees who earned $5,000 or more during the preceding year, the SIMPLE 401(k) offers simplified administration in exchange for required employer contributions. Employees are limited to $7,000 in salary deferrals and the employer must either match the deferral up to 3% or contribute 2% to every eligible employee's account. Like the SIMPLE IRA, contributions are 100% vested immediately.

Traditional 401K Plans

A 401(k) is a tax-qualified, defined contribution plan that contains a salary deferral arrangement. Each eligible employee may reduce his or her current compensation by a certain amount or percent and contribute this amount to the 401(k) plan on a pre-tax basis. The employer may also elect to make a matching contribution or profit sharing contribution to the plan.

Who can establish a 401(k)?
What are the contribution requirements?
Which employees are eligible to participate?
What are the deadlines associated with a 401(k)?
What amount is tax-deductible to the employer?
What makes a 401(k) attractive?
Under what circumstances can an employee take a distribution from the 401(k)?
Are there any taxes or penalties on distributions?

Who can establish a 401(k)?

Any employer, except a if the employer is the state or local government.

What are the contribution requirements?

Employee salary deferrals may not exceed the lesser of 25% of compensation (after reduction for deferrals) or $12,000 for 2003. Total contributions to the plan may not exceed the lesser of 25% total plan W-2 compensation up to $40,000 per participant (sole proprietors and partners must use Adjusted Net Business Income for contribution calculation). Matching and profit sharing contributions are made at the discretion of the employer.

Individuals age 50 and over may make annual "catch up" contributions in addition to their maximum salary deferral. For 2003, the catch-up amount is $2,000.
Certain individuals may be eligible to receive a tax credit for their 401(k) contributions. Depending on their Adjusted Gross Income (AGI), they may be eligible to receive a credit of up to 50% of their contribution (up to $1,000).

Excess contributions will incur a 10% penalty to the employer on the excess amount, unless removed within 2 1/2 months after the close of the plan year.

Which employees are eligible to participate?

Employers must include employees who are at least 21 years of age and have completed at least one year of service.

What are the deadlines associated with a 401(k)? The plan must be established on or before the last day of the employer's taxable year. Employee salary reduction contributions must be submitted as soon as it is administratively feasible, but no later than 15 days after end-of-month deferral. Employer contributions must be made by the due date of the employer's federal income tax return, including extensions.

What amount is tax-deductible to the employer?

The employer may deduct all contributions, up to 25%, of the compensation paid to all employees covered under the plan.

Under what circumstances can an employee take a distribution from the 401(k)?

Distributable events include:

• Reaching age 59 1/2 (even if still working and plan allows)
• Death
• Permanent disability
• Termination of employment (including retirement)
• Financial hardship (if plan allows)
• Plan termination

Distributions must begin by April 1 of the calendar year following the year in which the participant reaches age 70½, or by the year of retirement (if later). The second distribution must be taken by the end of that same year. Each subsequent annual distribution must be taken by December 31st of each year. Owners of 5% or more of the sponsoring business must begin distributions by April 1 of year following attainment of age 70½.

Distributions may be taken in a lump sum, or via systematic withdrawals, or annuitized (taken in regular payments over time) and must be initiated by the plan trustee.

Are there any taxes or penalties on distributions?

Generally, distributions will be taxable as income to the recipient, although some participants may be able to reduce their tax liability through forward averaging.

Distributions taken before age 59½ incur a 10% early withdrawal penalty on the taxable amount actually distributed prior to attainment of age 59½, death, permanent disability or separation from service after attaining age 55. The penalty is not applicable to distributions received as substantially equal payments under Section 72(t).

An "excess accumulation" penalty tax of 50% will be applied to any amount that should have been distributed--based on minimum required distributions (MRDs)--but was not distributed.

What makes a 401(k) attractive?

• Employees take responsibility for funding and investment direction.
• Employer contributions are discretionary and not based on profits.
• Employer can tie the company contribution to an employee's level of participation through a "match".
• Employer may attract and retain better employees.

403B Plans

A 403(b) plan is a salary deferral plan for non-profit organizations as categorized under Section 501(c)(3) of the Internal Revenue Code. A 403(b) combines many of the features of a 401(k) with the flexibility of an individual IRA.

Who can establish a 403(b)?
What are the contribution requirements?
Which employees are eligible to participate?
What are the deadlines associated with a 403(b)?
What amount is tax-deductible to the employer?
Can an employee take a distribution from the 403(b)?
What are the permitted investments of the 403(b) account?
Are there any taxes or penalties on distributions?
Are rollovers and transfers permitted?
What makes a 403(b) attractive?

Who can establish a 403(b)?

Public schools and non-profit organizations [IRS Code Section 501(c)(3)].

What are the contribution requirements?

Generally, salary deferrals may not exceed the lesser of $12,000 or 100% of net compensation (excluding the actual contribution), but other contribution calculation methods may be elected. Employer plus employee contributions may not exceed the lesser of 100% of net compensation or a maximum dollar amount of $40,000. Church employees may also be subject to special rules.

Individuals age 50 and over may make annual "catch up" contributions in addition to their maximum salary deferral. For 2003, the catch-up amount is $2,000.
Certain individuals may be eligible to receive a tax credit for their 403(b) contributions. Depending on their Adjusted Gross Income (AGI), they may be eligible to receive a credit of up to 50% of their contribution (up to $1,000)

Generally, the excess deferral contributions will incur a 10% penalty to the employee on the excess amount plus any earnings unless removed within 3 1/2 months after the close of the plan year. There is also a 6% penalty tax on excess contributions made by the employer, also payable by the employee. The excess employer contributions plus earnings must be removed from the account within 2 1/2 months after the close of the plan year to avoid the penalty.

Which employees are eligible to participate?

Employees with earned compensation from a qualifying employer. Minimum participation, coverage, and anti-discrimination requirements may apply.

What are the deadlines associated with a 403(b)?

The plan may be established and funded any time during the calendar year. Salary deferral contributions are based on the employee's taxable year and in order to be credited properly, should be contributed by the earlier of 30 days after reduction from salary or 30 days after the plan year-end.

What amount is tax-deductible to the employer?

Salary deferrals are deposited to the plan on a pre-tax basis to the employer.

Can an employee take a distribution from the 403(b)?

Only under certain conditions, which include:

• Termination of employment (including retirement)
• Reaching age 59 1/2
• Permanent disability of participant
• Death of participant
• Financial hardship

Distributions may be taken in partial amounts, in a lump sum, taken via systematic withdrawals, or annuitized. For salary reduction contributions, the owner of the account may request distributions; however, if requested for financial hardship, the employer must authorize. The employer must authorize employer contribution redemptions with a written request.

What are the permitted investments of the 403(b) account?

Only taxable mutual funds and annuities.

Are there any taxes or penalties on distributions?

All distributions will be taxable as income to the recipient.

Premature distributions incur a 10% early withdrawal penalty on the taxable amount actually distributed prior to attainment of one of the distributable events listed above. The penalty is not applicable to Financial Hardship distributions if used to pay deductible medical expenses.

An "excess accumulation" penalty tax of 50% will be applied to any amount that should have been distributed based on minimum required distributions (MRDs), but which was not distributed.

Are rollovers and transfers permitted?

One may transfer 403(b) assets from one sponsoring firm to another sponsoring firm. Both annuities and mutual fund 403(b) assets may be rolled into an IRA.

What makes a 403(b) attractive?

• Employees take responsibility for funding and investment direction.
• Employer contributions are discretionary and not based on profits.

Employer may attract and retain better employees

SEP Plans

A Simplified Employee Pension (SEP) is an IRA established for an employee into which the employer makes direct, tax-deductible contributions. SEP IRAs do not allow for employee salary deferral contributions.

What makes a SEP IRA attractive to "small businesses"?
What is the deadline for establishing a SEP IRA?
How are contributions made?
What is the maximum that can be contributed?
How can an employee age 50 or older participate in "Catch-Up" contributions to a SEP?
What amount is tax-deductible to the employer?
Who can establish a SEP IRA?
What are the eligibility requirements?
Can an employee take a distribution from the SEP IRA?
Are there any taxes or penalties on distributions?

What makes a SEP IRA attractive to "small businesses"?

SEP IRAs are very popular in the small business community. For the employer, the SEP IRA is simple to establish and administer, and there is no annual government reporting required (no annual 5500 filings). In addition, employer contributions are fully discretionary each year, and employers may take a deduction for the amount contributed on behalf of each employee. The contribution, if any, is not taxable to the participants until withdrawn. SEP IRAs may be established by a company's tax-filing deadline plus any filed-for extensions. Therefore, if the employer has missed the year-end deadline for establishing a qualified plan, there is still an opportunity for a SEP IRA to be established.

For the employees, the self-directed SEP IRA offers the ability to accumulate more assets than through an individual IRA and to choose investments that meet their specific retirement needs.

What is the deadline for establishing a SEP IRA?

The plan must be established and funded by the employer's tax-filing deadline, including filed-for extensions. The establishment process requires the employer's completion of the SEP Adoption Agreement and the completion of an IRA Adoption Agreement by each participant.

How are contributions made?

The employer forwards contributions directly to participant IRAs (even if the participant is age 701/2 or older). The annual contribution is discretionary and may be changed or discontinued in any given year. The same contribution percentage must be made on behalf of each eligible employee. Salary deferral contributions from employees are not permitted to a SEP IRA. All contributions are 100% vested immediately. The employer cannot attach any length of service requirements to the participant's "ownership" of the contribution.

What is the maximum that can be contributed?

Twenty-five percent of a participant's compensation, up to the annual compensation cap, is the maximum that can be contributed. For 2003, the maximum dollar amount is $40,000, based on the compensation cap of $200,000. An individual may also make a regular IRA contribution of up to $3,000 ($3,500 with "Catch-Up" Contribution) for 2003, to the same account, although the contribution may not be deductible due to active participation in the SEP IRA and the participant's compensation level.

How can an employee age 50 or older participate in "Catch-Up" contributions to a SEP?

For taxable years 2002 through 2005, individuals can increase their annual regular IRA contribution by $500 and in 2006 and thereafter by $1,000. The employee must turn 50 by the end of the taxable year that the catch-up contribution is made. Catch-up contributions are subject to deductibility rules.

What amount is tax-deductible to the employer?

The employer may deduct all contributions, up to 25%, of the compensation paid to each individual covered under the plan.

Who can establish a SEP IRA?

Corporations (S & C type), sole proprietors, partnerships and non-profit organizations can establish a SEP IRA, provided all eligible employees participate in the plan.

What are the eligibility requirements?

Employers must include those employees who have attained age 21 and who have been employed in any three of the preceding five calendar years, including part-time employees who earned annual compensation in excess of $450 in 2003 (indexed). Less restrictive eligibility requirements can always be established.

Employers may categorically exclude employees covered under a good-faith collective bargaining agreement and non-resident aliens.

Can an employee take a distribution from the SEP IRA?

An employee can withdraw all or part of a SEP IRA at any time; unlike a qualified Profit Sharing or Money Purchase Pension Plan, there is no requirement that the employee experience a "qualifying event" such as termination of employment or retirement to have access to their SEP account assets. Loans are not permitted from a SEP IRA.

Are there any taxes or penalties on distributions?

All distributions will be taxable as income to the recipient, except for non-deductible Traditional IRA contributions. Generally distributions prior to age 59 1/2 are subject to a 10% early withdrawal penalty in addition to income taxes. Please consult your tax advisor for more complete information and additional penalties that might affect you or your employees.

Simple Plans

A simple 401k is a type of 401K plan Limited to employers who have had 100 or fewer employees who earned $5,000 or more during the preceding year, the SIMPLE 401(k) offers simplified administration in exchange for required employer contributions. Employees are limited to $7,000 in salary deferrals and the employer must either match the deferral up to 3% or contribute 2% to every eligible employee's account. Like the SIMPLE IRA, contributions are 100% vested immediately.

Profit Sharing Plans

A Profit Sharing Plan is a qualified retirement plan established by an employer to allow for discretionary tax-deductible contributions of up to 25% of total compensation paid to all eligible employees. Generally, a Profit Sharing Plan can be implemented and administered without substantial set up charges or excessive annual administrative fees.

Why should a small business establish a Profit Sharing Plan?
What is the deadline for establishing a Profit Sharing Plan?
What are the employer's responsibilities?
How are contributions calculated?
What contribution amount is tax-deductible to the employer?
Are loans available from the plan?
Who can establish a Profit Sharing Plan?
What are the eligibility requirements?
What is the deadline for establishing a Profit Sharing Plan?
When can an employee take a distribution from the Profit Sharing Plan?
Are there any taxes or penalties on distributions?

Why should a small business establish a Profit Sharing Plan?

There are significant advantages to adopting a Profit Sharing Plan for both the employer and the employees. The employer can attract and retain valuable employees, while retaining the flexibility to exclude some part-time workers (typically those who work fewer than 1,000 hours per year). All contributions are made by the employer, and the percentage contributed can vary from year to year. A vesting schedule can be applied to amounts contributed, which effectively encourages an employee to longer service.

The employee enjoys an employer funded benefit plan that offers the ability to accumulate more assets than possible through an individual IRA, and tax-deferred growth of investments while in the plan.

What is the deadline for establishing a Profit Sharing Plan?

The plan must be established by the last day of the employer's fiscal year, although funding may be deferred until the employer's tax-filing deadline, including filed-for extensions.

What are the employer's responsibilities?

The employer is considered the "plan sponsor," and as such is responsible for overseeing the continuing compliance of the plan with current laws. In addition, records must be kept of each participant's share of ownership in plan assets, eligibility, vesting, and any outstanding loans. With the exception of employers who have no common-law employees other than a spouse and total plan assets of less than $100,000, all plans must file an annual 5500 report. Most employers find that hiring an accountant or independent plan administrator is the most effective way to avoid any oversights of these responsibilities.

How are contributions calculated?

A company may make contributions to a Profit Sharing Plan as a percentage of compensation for each eligible employee. The maximum amount that may be contributed to the plan overall is 25% of the total compensation paid to all eligible employees.

The maximum percentage contribution that any individual may receive is 100% of includable compensation to a maximum of $40,000. This amount is limited by the overall maximum permitted to be contributed to the plan. In reality most participants will not exceed 25%.

There are several Profit Sharing Plan variations that may allow for some disparity between contribution percentages of different employees. These variations are known as "Social Security Integration," "Age-Weighted" and "New Comparability" plans and tend to benefit higher compensated and/or older employees.

The potential drawback to these options may be a significant escalation in the cost of adopting and operating them. Please consult your Allegiant Financial Advisor for more complete information.

What contribution amount is tax-deductible to the employer?

The employer may deduct all contributions (up to 25%) of the compensation paid to each employee covered under the plan.

Are loans available from the plan?

Participants may take loans from the plan, as long as the employer elects to allow loans in the plan adoption agreement.

Who can establish a Profit Sharing Plan?

Corporations (S & C type), self-employed individuals, partnerships and non-profit organizations can establish a Profit Sharing Plan. The companies are not required to base contributions on "profits," nor are they required to have current profits.

What are the eligibility requirements?

An employer may wish to restrict plan eligibility in order to reward those employees with longer tenure. This is permissible within certain limits. The plan may exclude employees who have not attained age 21 and those with less than two years of service (a year of service is generally defined as 1,000 hours within the plan year). It is more common to establish a one year service requirement which allows a vesting schedule to be applied to contributions, because employees restricted from participating in the plan for more than a year become 100% vested upon entry into the plan.

The plan may also exclude non-resident aliens and employees covered under a collective bargaining agreement, as well as entire subsidiaries, divisions, locations or classifications of employees as long as the plan covers a certain minimum percentage of all non-highly compensated employees.

What is the deadline for establishing a Profit Sharing Plan?

The plan must be established by the last day of the employer's fiscal year, although funding may be deferred until the employer's tax-filing deadline, including filed-for extensions.

When can an employee take a distribution from the Profit Sharing Plan?

Employees must experience a "qualifying event" to gain access to their Profit Sharing Plan account assets.

Distributions can only be made in the following circumstances:

• Termination of employment
• Termination of the plan
• Permanent disability of the participant
• Death of the participant
• Normal or early retirement as defined in the plan document
• "In-service distribution" if permitted in the plan document
• Financial hardship if permitted in the plan document

Are there any taxes or penalties on distributions?

All distributions will be taxable as income to the recipient, except for distributions attributable to after-tax contributions. Generally, distributions prior to age 591/2 are subject to a 10% early withdrawal penalty in addition to income taxes.

Please consult your tax advisor for more complete information and additional penalties.

Money Purchase Plans

A Money Purchase Pension Plan is a qualified retirement plan established by an employer to allow for tax-deductible contributions of up to 25% of total compensation paid to all eligible employees.

The maximum contribution that any individual may receive is 100% of includable compensation to a maximum of $40,000. This amount is limited by the overall maximum that can be contributed to the plan - 25%.

The contribution percentage is established in the plan adoption agreement and is inflexible. The adoption agreement must be amended to change the contribution percentage. Like the Profit Sharing Plan, the Money Purchase Pension Plan can generally be implemented and administered without substantial setup charges and expensive annual administrative fees.

Why is a Money Purchase Pension Plan attractive to small businesses?
What is the deadline for establishing a Money Purchase Pension Plan?
What are the employer's responsibilities?
What contribution amount is tax-deductible to the employer?
Are loans available from the plan?
Who can establish a Money Purchase Pension Plan?
What are the eligibility requirements?
What is the deadline for establishing a Money Purchase Pension Plan?
When can an employee take a distribution from the Money Purchase Pension Plan?
Are there any taxes or penalties on distributions?

Why is a Money Purchase Pension Plan attractive to small businesses?

For plan years beginning after December 31, 2001 Money Purchase Pension plans will be less advantageous vs. Profit Sharing Plans than they have been.

Potential plan sponsors may not want to establish a Money Purchase Pension Plan; the Profit Sharing Plan may be an equally beneficial option.

The employee enjoys an employer funded benefit plan that offers the ability to accumulate more assets than through a Traditional IRA, and tax-deferred growth of investments while in the plan.

What is the deadline for establishing a Money Purchase Pension Plan?

The plan must be established by the last day of the employer's fiscal year, although funding may be deferred until the employer's tax-filing deadline, including filed-for extensions.

What are the employer's responsibilities?

The employer is considered the "plan sponsor," and as such is responsible for overseeing the continuing compliance of the plan with current laws. In addition, records must be kept of each participant's share of ownership in plan assets, eligibility, vesting, and any outstanding loans. With the exception of employers who have no common-law employees other than a spouse and total plan assets of less than $100,000, all plans must file an annual 5500 report. Most employers find that hiring an accountant or independent plan administrator is the most effective way to avoid any oversights of these responsibilities.

What contribution amount is tax-deductible to the employer?

The employer may deduct all contributions up to 25% of the compensation paid to each employee covered under the plan.

Are loans available from the plan?

Participants may take loans from the plan as long as the employer elects to allow loans in the plan adoption agreement.

Who can establish a Money Purchase Pension Plan?

Corporations (S & C type), self-employed individuals, partnerships and non-profit organizations can establish a Money Purchase Pension Plan.

What are the eligibility requirements?

An employer may wish to restrict plan eligibility in order to reward those employees with longer tenure. This is permissible within certain limits. The plan may exclude employees who have not attained age 21 and those with less than two years of service (a year of service is generally defined as 1,000 hours within the plan year). It is more common to establish a one year service requirement which allows a vesting schedule to be applied to contributions, because employees restricted from participating in the plan for more than a year become 100% vested upon entry into the plan.

The plan may also exclude non-resident aliens and employees covered under a collective bargaining agreement, as well as entire subsidiaries, divisions, locations or classifications of employees, as long as the plan covers a certain minimum percentage of all non-highly compensated employees.

What is the deadline for establishing a Money Purchase Pension Plan?

The plan must be established by the last day of the employer's fiscal year, although funding may be deferred until the employer's tax-filing deadline, including filed-for extensions.

When can an employee take a distribution from the Money Purchase Pension Plan?

An employee must experience a "qualifying event" to gain access to his/her Money Purchase Pension Plan account assets. Distributions can only be made in the following circumstances:

• Termination of employment
• Termination of the plan
• Permanent disability of the participant
• Death of the participant
• Normal or early retirement as defined in the plan document

Are there any taxes or penalties on distributions?

All distributions will be taxable as income to the recipient, except for distributions attributable to after-tax contributions. Generally, distributions prior to age 59 1/2 are subject to a 10% early withdrawal penalty in addition to income taxes. Please consult your tax advisor for more complete information.