As the IRS makes changes to the annual qualified retirement plan limits and maximum contributions, we will keep you informed and help you determine if your plan still meets your objectives. Below are some of the current plan limits, as well as the numbers for previous years.

A SEP-IRA plan is a good choice for the self-employed. The maximum contribution for 2023 is $66,000 (or 25% of self-employment income whichever is more). Because a SEP-IRA contribution is considered an “employer” contribution, it is not subject to Social Security and Medicare taxes. If you are married and your spouse is not employed, they can still contribute the maximum to a Traditional IRA account. In addition, if your gross adjusted income is below $218,000 (married filing jointly), you can also have a Roth IRA account. However, with a SEP-IRA plan, if you have employees you must contribute the same percentage to all employees as you do for yourself. Keep in mind that each employee has an IRA account and all contributions are vested immediately.

A SIMPLE-IRA may be a good choice in this instance. Each employee (including you and your spouse) can defer up to $15,500 annually ($19,000 over age 50). As an employer, your only obligation is to match the first 3% of deferrals by all employees including yourself. For example, if you have an employee that earned $40,000, your match would be $1,200 as long as the employee contributed at least that amount.

The limit on compensation for determining the match is $330,000. This would cap your maximum to $25,400 ($28,900 over age 50). The deferrals into the plan are also subject to Social Security and Medicare taxes. Often a SIMPLE-IRA is a good choice as an initial plan option for the first two or three years. The shortcomings of a SIMPLE are that all employer contributions are vested immediately and there is no ability to make additional contributions when you have a good year.

A 401(k) plan is actually a plan option in a profit-sharing plan. A basic profit-sharing plan is very similar to a SEP-IRA plan. Each eligible employee (generally one year of employment) gets the same percentage of their W-2 income placed into an account that may or may not be subject to a vesting schedule (employer option). A typical vesting schedule would be 20% after two years, 40% after three years, 60% after four years, 80% after five years, and 100% after six years. A 401(k) plan is simply an option for every employee to defer up to $20,500 per year ($27,000 over age 50) within the profit-sharing plan. The employer may elect to have some kind of matching formula on the 401(k) deferrals. The 401(k) option can be made available whether or not there are profit-sharing contributions or matching contributions.

Generally speaking, highly compensated employees (income over $135,000 or a 5% ownership in the business) are not allowed to make a deferral more than 2% above the average of the non-highly compensated employees. For example, if your employees averaged a 3% deferral rate, the maximum for highly compensated employees would only be 5%. In small groups, one person not deferring can have a very big impact. In most cases, an employer can offer a Safe Harbor 401(k) plan where all eligible employees receive a 3% contribution that is vested immediately. Under a Safe Harbor plan, highly compensated employees can contribute the maximum regardless of the participation level of the other employees.

Our attorneys can explain various estate planning techniques and can consult with you regarding your estate planning goals and options.  While we do not practice law, and do not draft estate planning documents, we can review your current documents and work with your estate planning attorney to help ensure that your plan meets your personal goals and is implemented correctly.

Tax reporting will be mailed on or before January 31 of each year. This includes an annual statement and any Forms 1099 related to your account. The entire tax mailing should be given to your tax preparer including your annual statement. A schedule of gains and losses from security sales is available upon request.

We have a number of options for our clients, and work closely with them to accomplish their goals.  Our clients’ accounts can be as simple as retirement account investing in a menu of daily valued public mutual funds, as well as individually managed portfolios.  As retirement approaches, one of the highest priorities for individuals and families is to determine how they will maintain their current lifestyles once that paycheck goes away.  Ultimately, our goal is to build a customized investment portfolio that is designed to offset your annual income needs, without eroding the principal. 

Once we’ve had an opportunity to better understand your objectives and risk profile, we will be able to determine what investment vehicles will work best for you, and explain why they may be suitable for a particular investment objective. Our investment philosophy is time tested, and we are proud of the long-term track record and the results we have achieved for retired clients.  Contact us today, and give us an opportunity to explain why our approach may be exactly what your long term goals need.