401k - Linkenheimer LLP CPAs & Advisors

Self-Employed? Build A Nest Egg With A Solo 401(k) Plan

Do you own a successful small business with no employees and want to set up a retirement plan? Or do you want to upgrade from a SIMPLE IRA or Simplified Employee Pension (SEP) plan? Consider a solo 401(k) if you have healthy self-employment income and want to contribute substantial amounts to a retirement nest egg.

This strategy is geared toward self-employed individuals including sole proprietors, owners of single-member limited liability companies and other one-person businesses.

Go it alone

With a solo 401(k) plan, you can potentially make large annual deductible contributions to a retirement account.

For 2022, you can make an “elective deferral contribution” of up to $20,500 of your net self-employment (SE) income to a solo 401(k). The elective deferral contribution limit increases to $27,000 if you’ll be 50 or older as of December 31, 2022. The larger $27,000 figure includes an extra $6,500 catch-up contribution that’s allowed for these older owners.

On top of your elective deferral contribution, an additional contribution of up to 20% of your net SE income is permitted for solo 401(k)s. This is called an “employer contribution,” though there’s technically no employer when you’re self-employed. (The amount for employees is 25%.) […]

By Linkenheimer LLP|2022-08-24T18:42:47+00:00August 24th, 2022|401k|0 Comments

Establish a Tax-Favored Retirement Plan

If your business doesn’t already have a retirement plan, now might be a good time to take the plunge. Current retirement plan rules allow for significant tax-deductible contributions.

For example, if you’re self-employed and set up a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum contribution of $61,000 for 2022. If you’re employed by your own corporation, up to 25% of your salary can be contributed to your account, with a maximum contribution of $61,000. If you’re in the 32% federal income tax bracket, making a maximum contribution could cut what you owe Uncle Sam for 2022 by a whopping $19,520 (32% times $61,000).

More options

Other small business retirement plan options include:

401(k) plans, which can even be set up for just one person (also called solo 401(k)s),
Defined benefit pension plans, and
SIMPLE-IRAs.

Depending on your circumstances, these other types of plans may allow bigger deductible contributions.

Deadlines to establish and contribute

Thanks to a change made by the 2019 SECURE Act, tax-favored qualified employee retirement plans, except for SIMPLE-IRA plans, can now be adopted by the due date (including any extension) of the employer’s federal income tax return for […]

By Linkenheimer LLP|2022-03-14T21:05:46+00:00March 14th, 2022|retirement|0 Comments

IRS Announces Adjustments to Key Retirement Plan Limits

In Notice 2021-61, the IRS recently announced 2022 cost-of-living adjustments to dollar limits and thresholds for qualified retirement plans. Here are some highlights:

Elective deferrals. The annual limit on elective deferrals (employee contributions) will increase from $19,500 to $20,500 for 401(k), 403(b) and 457 plans, as well as for Salary Reduction Simplified Employee Pensions (SARSEPs). The annual limit will rise to $14,000, up from $13,500, for Savings Incentive Match Plans for Employees (SIMPLEs) and SIMPLE IRAs.

Catch-up contributions. The annual limit on catch-up contributions for individuals age 50 and over remains at $6,500 for 401(k), 403(b) and 457 plans, as well as for SARSEPs. It also stays at $3,000 for SIMPLEs and SIMPLE IRAs.

Annual additions. The limit on annual additions — that is, employer contributions plus employee contributions — to 401(k)s and other defined contribution plans will increase from $58,000 to $61,000.

By Linkenheimer LLP|2021-12-07T00:04:36+00:00December 7th, 2021|irs, retirement|0 Comments

Thinking About Participating In Your Employer’s 401(k) Plan? Here’s How It Works

Employers offer 401(k) plans for many reasons, including to attract and retain talent. These plans help an employee accumulate a retirement nest egg on a tax-advantaged basis. If you’re thinking about participating in a plan at work, here are some of the features.

Under a 401(k) plan, you have the option of setting aside a certain amount of your wages in a qualified retirement plan. By electing to set cash aside in a 401(k) plan, you’ll reduce your gross income, and defer tax on the amount until the cash (adjusted by earnings) is distributed to you. It will either be distributed from the plan or from an IRA or other plan that you roll your proceeds into after leaving your job.

Tax advantages

Your wages or other compensation will be reduced by the amount of pre-tax contributions that you make — saving you current income taxes. But the amounts will still be subject to Social Security and Medicare taxes. If your employer’s plan […]

By Linkenheimer LLP|2021-10-28T22:01:03+00:00October 28th, 2021|401k, employer|0 Comments

Simple Retirement Savings Options for Your Small Business

Are you thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved in providing a traditional pension plan? Two options to consider are a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an alternative to “qualified” retirement plans, particularly for small businesses. The relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions, are features that are appealing.

Uncomplicated paperwork

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. […]

By Linkenheimer LLP|2021-04-13T18:39:40+00:00April 13th, 2021|retirement|0 Comments