Sullivan & Company - Certified Public Accountants 4709 Montgomery Lane #201 - Bethesda, MD, 20814 Phone: 301-657-8080

       

 

Financial Services by Sullivan & Company

Kathy Grow EA/IAR

Recently Paul Sullivan, CPA and Kathy Grow, Investment Advisory Representative and Enrolled Agent, attended a financial services workshop in Indianapolis, IN.

It was hosted by Archer Funds, the registered advisor firm we work through to provide financial advice to our clients here in the DC area.

This forum allowed for two days of learning and networking. Speakers included the President of Archer Funds, Troy Patton, who spoke on the state of the market.

Troy is known for understanding how world events and complex factors affect our U.S. Market.

Steve Demas, Portfolio Manager, spoke on client services. Steve has a long history of working with clients on their personal finances and individual investments before dedicating all of his time to researching appropriate investments for the Archer portfolios.

John Rosebrough, Chartered Financial Analyst, provided insight into the technical aspects of portfolio management.

Troy, Steve and John actively manage the Archer Funds and the portfolios that are built around these funds. Sullivan & Company, CPAs offers investment advice.

For a free review of your investments, give Kathy a call at 301 657-8080 X 135.

 


 

 

Paul Sullivan, CPA

Sullivan & Company

 

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Other Articles

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This Month's Feature Articles

- Renting Out a Vacation Home
- Should You Invest in Life Insurance?
- Employee Relocation in a Down Market
- A SIMPLE Retirement Plan for the Self-Employed

Tax Tips

- Special Tax Benefits for Armed Forces Personnel
- Deducting Charitable Contributions: Eight Essentials
- What Income Is Nontaxable?
- Tips for Recently Married or Divorced Taxpayers

Financial Planning Tips

- Create a Living Will
- Update Your Will
- Review Budget vs. Actuals



 

If your CPA isn't providing this type of information to you as a

client each month, maybe it's time to talk with or switch to Paul

Sullivan at Sullivan & Company CPAs.  To set up an appointment to

talk with Paul at 800-652-6521 or in Bethesda call 301-657-8080.

A SIMPLE Retirement Plan
for the Self-Employed

 

Of all the retirement plans available to small business owners, the SIMPLE plan is the easiest to set up and the least expensive to manage.

 

These plans are intended to encourage small business employers to offer retirement coverage to their employees. 

 

SIMPLE plans work well for small business owners who don't want to spend time and high administration fees associated with more complex retirement plans.

 

SIMPLE plans really shine for self-employed business owners. Here's why...

 

Self-employed business owners contribute both as employee and employer, with both contributions made from self-employment earnings.

 

SIMPLEs calculate contributions in two steps:

Employee out-of-salary contribution

The limit on this "elective deferral" is $11,500 in 2012, after which it can rise further with the cost of living.

Catch-up. Owner-employees age 50 or over can make a further $2,500 deductible "catch-up" contribution  (for a total of $14,000) as employee in 2012.

Employer "matching" contribution

The employer match equals 3% of employee's earnings.

Example: A 52-year-old owner-employee with self-employment earnings of $40,000 could contribute and deduct $11,500 as employee plus a further $2,500 employee catch-up contribution, plus $1,200 (3% of $40,000) employer match, or a total of $15,200.

 

SIMPLE plans are an excellent choice for home-based businesses and ideal for full-time employees or homemakers who make a modest income from a sideline business.

If living expenses are covered by your day job (or your spouse's job), you would be free to put all of your sideline earnings, up to the ceiling, into SIMPLE retirement investments.
 

 

A Truly Simple Plan

A SIMPLE plan is easier to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules - in investment options, spousal rights, creditors' rights - don't have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible. Your plan's custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit easier than with other plans.

What's Not So Good About SIMPLE Plans

Once self-employment earnings become significant however, other retirement plans may be more advantageous than a SIMPLE retirement plan.
 

Example:  If you are under 50 with $50,000 of self-employment earnings in 2012, you could contribute $11,500 as employee to your SIMPLE plus an additional 3% of $50,000 as an employer contribution, for a total of $13,000. In contrast, a 401(k) plan would allow a $29,500 contribution.

With $100,000 of earnings, it would be a total of $14,500 with a SIMPLE and $42,000 with a 401(k).


Because investments are through an IRA, you're not in direct control. You must work through a financial or other institution acting as trustee or custodian, and you will generally have fewer investment options than if you were your own trustee, as you would be in a 401(k).

It won't work to set up the SIMPLE plan after a year ends and still get a deduction that year, as is allowed with Simplified Employee Pension Plans, or SEPs. Generally, to make a SIMPLE plan effective for a year, it must be set up by October 1 of that year. A later date is allowed where the business is started after October 1; here the SIMPLE must be set up as soon thereafter as administratively feasible.

If the SIMPLE plan is set up for a sideline business and you're already vested in a 401(k) in another business or as an employee the total amount you can put into the SIMPLE plan and the 401(k) combined (in 2012) can't be more than $17,000 or $22,500 if catch-up contributions are made to the 401(k) by someone age 50 or over.

So someone under age 50 who puts $9,000 in her 401(k) can't put more than $8,000 in her SIMPLE 2012. The same limit applies if you have a SIMPLE plan while also contributing as an employee to a 403(b) annuity (typically for government employees and teachers in public and private schools).

How to Get Started with a SIMPLE Plan

You can set up a SIMPLE account on your own, but most people turn to financial institutions. SIMPLE Plans are offered by the same financial institutions that offer IRAs and 401k master plans.

You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement you will choose an "effective date" - the beginning date for payments out of salary or business earnings. That date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE. You need such an agreement even if you pay yourself business profits rather than salary.

Printed guidance on operating the SIMPLE may also be provided. You will also be establishing a SIMPLE IRA account for yourself as participant.

You can click here to read the rest of the article where I COMPARE 401k's, SEPs, and SIMPLES in a CHART or if you want, call my office and ask for me or Kathy Grow and we will be happy to answer any questions you have about SIMPLE Plans.

And as always if you have any questions about accounting or investments effect you or your business, please give me a call at 301-657-8080. We can help guide you in the right direction.

 

To read this article online, click here or go to www.eSullivan.net and click on the Newsletter section.

 


 

As always you can call our offices if you have any questions about these or any other accounting, tax, financial planning or insurance related issues, at 301-657-8080. 

 

Regards, Paul Sullivan, CPA

President, Sullivan & Company

 

 

 

 

Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 www.eSullivan.net | email: pSullivan@eSullivan.net | Like Us on Facebook

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