RetirementFinding the ‘Goldilocks’ Retirement Plan

Where do you set aside the money you’re saving for retirement? If you’re like many Americans, you save for retirement primarily through an employer’s retirement plan, according to Pew Research.1

 

Unfortunately, less than one-half of private sector employers sponsor retirement plans. Firms that have plans tend to be large and small employers and self-employed often don’t have access.1 As a result, the burden of saving for retirement falls onto the individual in those situations.

In part, the lack of employer sponsored retirement plans with small businesses may be because of a misperception. Many small companies think sponsoring a retirement plan is too expensive and complex. However, 45 percent of smaller employers have never researched retirement plans and just 23 percent have researched any options other than 401(k) plans, reported the 2018 Millennium Trust Small Business Retirement Survey.2

The fact is there are workplace retirement plan options developed specifically for smaller employers. These include:

  • Savings Incentive Match Plans for Employees (SIMPLE) IRA Plan. Employers with fewer than 100 employees that have no other workplace retirement plan can sponsor SIMPLE IRA Plans. They’re easy to administer, salary reduction plans that have no annual filing requirements.3

While there are limitations and drawbacks, generally, all employees who were paid $5,000 or more during any two preceding calendar years, and who are expected to receive $5,000 or more during the calendar year, are eligible to participate. Employees decide if and how much to contribute. However, the maximum that that can go into a plan with both employee and employer contributions tends to max out in the low $20,000s per year. Contributions are made to IRA accounts, which are subject to the same investment, distribution, and rollover rules as Traditional IRAs.3, 4 Because the SIMPLE IRA is funded with IRAs, each employee owns their account and there are no vesting requirements.

Employers must make either a matching contribution or a non-elective contribution to employees’ accounts each year. However, one employer benefit is that employer contributions to SIMPLE Plans are tax deductible.5, 6

The pros and cons, according to the IRS, for SIMPLE Plans include:7

    • They are easy and inexpensive to set up and operate.
    • Employees share responsibility for their retirement preparations.
    • No discrimination testing is required.
    • Employer contributions are inflexible.
    • The plan has lower contribution limits than some other retirement plans.

In addition, employers may be able to claim a tax credit equal to 50 percent of eligible startup costs, with a minimum credit of $500 per year, for the first three years of plan operation and the maximum is $250 times the number of eligible non-highly compensated employees, up to $5,000.8 The SECURE Act also added a new tax credit for SIMPLE Plans that are set up with automatic enrollment, $500 a year for three years after set up, which can help small business owners offset some of the costs to set up and administer the plan. 8 These new plans could see up to $16,500 in tax credits over the first three years of the plan.

  • Simplified Employee Pension (SEP) IRA Plan. Employers of all sizes can put a SEP Plan in place. Like SIMPLE Plans, they’re easy to administer, salary reduction plans that have no annual filing requirements.9

While there are exceptions, typically, any employee who is 21 or older, has worked for the company during three of the previous five years, and been paid $600 or more, may be eligible to participate.10

Employers make all contributions to SEP Plans. When employers choose to make contributions, they must contribute the same percentage of compensation to every employee’s IRA account. Employer contributions to SEP Plans may be deductible.9, 11

The pros and cons, according to the IRS, for SEP Plans include:7

    • They are easy to set up and operate.
    • They have low administrative costs.
    • Employer contributions are flexible because the employer chooses when to contribute.
    • Employers must contribute equally for all eligible employees.

Again, employers may be eligible for a plan start-up tax credit. But, since SEPs don’t have salary deferral they won’t be eligible for the automatic enrollment tax credit provisions.

  • Payroll Deduction IRA Plan. This may be the simplest workplace retirement plan option. There are no plan documents and no annual filing requirements. All the employer is required to do is transmit the authorized amount to IRA accounts that have been established by employees.12

Employees make all contributions to payroll deduction IRA Plans. Each employee is also responsible for choosing the financial institution and establishing the IRA account that will receive contributions.12

The pros and cons, according to the IRS, for IRA Payroll Deduction Plans include:12

    • They are easy to set up and operate.
    • There is little administrative burden or cost.
    • Employees may not perceive the plan to be a benefit.
    • There is no deduction for the business.
    • Employees may or may not be able to deduct their contributions.

If you own or work for a small business that doesn’t currently provide employees with a way to save for retirement, a 401(k) plan is not the only option. If retirement is on your mind, it may be a good idea to educate your employer about the retirement plan options available to small businesses.

You also can save on your own in an Individual Retirement Account (IRA). It’s surprising when so many people are concerned about retirement, but relatively few American households (15 percent) contribute to IRAs outside of work.1

If you don’t have a workplace plan, setting up an IRA and automatically transferring funds from a checking or savings account is a good way to save for the future.

If you would like to learn more, please give us a call.

Sources:

1 https://www.pewtrusts.org/en/about/news-room/opinion/2019/03/14/3-ways-people-may-save-for-retirement-in-the-future
2 https://marketing.mtrustcompany.com/acton/media/19203/2018-small-business
3 https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-establishing-a-simple-ira-plan
4 https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-participation
5 https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-contributions
6 https://www.irs.gov/retirement-plans/operating-a-simple-ira-plan
7 https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-simple-ira-plan
8 https://www.napa-net.org/secure-act-tax-credit-qas#:~:text=Yes%2C%20per%20year.-,For%20taxable%20years%20that%20begin%20after%20Dec.,a%20maximum%20credit%20of%20%245%2C000.
9 https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-sep
10 https://www.irs.gov/retirement-plans/plan-participant-employee/who-can-participate-in-a-sep-or-sarsep-plan
11 https://www.irs.gov/retirement-plans/operating-a-sep
12 https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-payroll-deduction-ira

Securities offered through “LPL Financial”, member FINRA/SIPC.

The above material was prepared by Carson Coaching.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax in addition to current income tax.
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Holly Farrar

Client Services Associate

As director of First Impressions, I strive to make sure our clients have a comfortable and meaningful experience while providing remarkable customer service at the highest standards. I enjoy going to local Everett events and festivities while spending time with friends and family. I love to read, especially dystopian novels.  I am involved in volunteering opportunities within the community including grocery shopping for homebound people, coffee trailer and first responder appreciation.

Education and Biography

Training

Holly Studied Business and Management at Sno-Isle Business and Management & Everett Community College. She has over 20 years of customer service and administrative experience.

Specialisms

Holly’s focus is to create meaningful connections between our clients and our office. She schedules appointments, answers calls, processes transactions, preparing paperwork to maintain accounts as well as opening new accounts, and transfers.

Albert Ballesteros

With over 25 years of customer service working in the Financial Industry and the State of Washington, Albert is a welcome addition to the service team. He helps with opening new accounts and servicing current accounts. You have probably received appointment reminders from him. He also works with the marketing team in planning monthly letters to clients, planning special events and creating the weekly newsletters.
In his spare time, he volunteers at Northshore Christian Church, having completed two mission trips to the Philippines and has a passion for singing. He enjoys playing and watching most sports but is especially an avid fan of the Everett Silvertips.

Education and Biography

TRAINING

Albert attended Honolulu Community College where he obtained his AA in Liberal Arts.

SPECIALISMS

Albert joined Bailey Wealth Services in 2022. His focus is to provide support to both prospective and existing customers with exceptional customer service. He is very personable and brings professionalism to his role.

Wes Burroughs

One of the things I enjoy most about what I do is educating clients on what is available to them as an investor. Our clients know where they’re at financially and where they are going because we make breaking down the complexities of a constantly changing world a top priority. Outside of work, I love spending time with my wife, Blyn, and playing with our daughter, Sophia. I also enjoy running and hosting game night with friends.

Education and Biography

TRAINING
Wes attended Liberty University where he obtained his BA in Philosophy.

SPECIALISMS
Wes joined Bailey Wealth Services in 2021. His focus is helping families maintain and grow the wealth they already have. Wes enjoys working with our valued clients to facilitate financial relationships by providing solutions, solving problems, and helping them manage their financial lives.

A. Sean Bailey, CFP®

My mission is to assist families as they strive to acquire, accumulate and retain wealth in a tax efficient manner so they may live in retirement with confidence and dignity. When I’m not engaged in professional activities, you can find me on a mountain top with my wife, Kim, and our two children, Eleanor and Oscar.

Education and Biography

TRAINING
Sean received his Bachelor’s Degree in Business Administration, Finance Concentration, from the University of Washington.

SPECIALISMS
Sean Bailey has been in the financial services industry for 30 years. He specializes in developing comprehensive financial, estate and retirement planning strategies for clients nearing and in retirement. Sean is a Registered Principal and Investment Advisor with LPL Financial. He is a CERTIFIED FINANCIAL PLANNER™ Practitioner. Sean is also a member of the Financial Planning Association and Ed Slott’s Elite IRA Advisor Group.

Ed Slott’s Elite IRA Advisor Group is not affiliated with Bailey Wealth Services or LPL Financial.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING

 

Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

 

SPECIALISMS

 

Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING
Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

SPECIALISMS
Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.