our instructor for the two day seminar ......– avoid formal retirement planning with your client...

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E X P L O R I N G T H E T A X A N D P L A N N I N G

A S P E C T S O F O U R P R I V A T E A N D

P U B L I C R E T I R E M E N T P L A N S Y S T E M S

W E B I N A R P R E S E N T E D B Y K R I S T Y M A I T R E A N D M I C H A E L M I R A N D A

O C T O B E R 1 0 T H A N D 1 1 T H 2 0 1 7 1

OUR INSTRUCTOR FOR THE TWO DAY SEMINAR – MICHAEL MIRANDA• Michael Miranda, CPA, QKA, AEP, is the owner of Miranda CPA & Consulting LLC in Sioux Falls,

South Dakota. Michael previously worked for Williams & Company CPA PC as a senior manager from 1989 to May of 2017. While at Williams & Company, Michael provided tax consulting, estate planning and employee benefit services. In 1976, he received a B.S. Degree in Accounting from Indiana University, South Bend, Indiana. Prior to joining Williams & Company, he was on staff as a Tax Specialist with Price Waterhouse in offices at South Bend and Minneapolis. Michael is currently the Treasurer and Liaison Board member for the Sioux Falls Estate Planning Councils. He holds CPA licenses in the states of Iowa, Minnesota and South Dakota.

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AGENDA• Preparing for Retirement – A Checklist Approach (October 10th 2017

Webinar)

• Private Retirement Plans (October 10th and 11th 2017 Webinars)

– Qualified Plan Arrangements

– Choosing the Right Small Business Plan

– Regular IRAs (Tax Deferred) and Roth IRAs

– Rollovers, Distributions, and Penalty Issues

– Operational Issues, including Correction Procedures

– Plan Termination Considerations

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AGENDA• Social Security – What’s In It for Your Clients (October 11th 2017 Webinar)

– Introduction

– Qualifying for Benefit

– Retirement Benefits

– Divorce

– Survivor Benefits

– Disability

– Calculating the Benefit – Brief Overview

– Social Security Planning

• Questions & Answers5

RETIREMENT PLANNING CHECKLIST • Key Ideas – For Each Stage of Life

– Help Your Client Start Today

– Develop Powerful Advanced Strategies for Your Client

– Understand Why Formal Retirement Planning TOO Early is Harmful

– Develop Appropriate Action Plan in the Years Immediately Prior to Retirement

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RETIREMENT PLANNING CHECKLIST• Retirement Planning Checklist for Your Client’s 20s – Save Money and Build

Assets

– The importance of starting now

– How to begin

– Develop a retirement planning extra credit – investment in real estate

• Summary

– Help your client max out their tax deferred retirement plan contributions

– Help your client acquire positive cash flow rental property

– Oh yeah – don’t forget to tell them to have fun

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RETIREMENT PLANNING CHECKLIST• Retirement Planning for Mid-Career – Grow Their Assets and Financial Intelligence

– General time frame after the 20s and 30s and about 5 to 10 years prior to retirement

– This period’s retirement planning objectives for “Mid-Career” –

• Grow a nest egg large enough to support the client’s retirement

• Grow the client’s financial knowledge and level of intelligence in this area is important

– “Our life is frittered away by detail. Simplify, simplify, …” – Henry David Thoreau

– Avoid formal retirement planning with your client – too many factors will change during time period prior to retirement

– Focus your client’s attention on the available resources they have that can make a difference

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RETIREMENT PLANNING CHECKLIST• Action Steps for the Mid-Career Individual(s)

– Help Your Client Build Their Financial Intelligence

– “Employ your time in improving yourself by other men’s writing so that you shall come easily by what others have labored hard for.” – Socrates

– Help Your Client Keep Accurate Records

– Help Your Client Create Their First Ballpark Estimate

– Coach Your Client to Avoid Raiding Their Retirement Accounts

– Help Your Client to Focus on the “Long-Term”

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RETIREMENT PLANNING CHECKLIST• Checklist for 5 to 10 Years Before Retirement

– To date, you helped your client build a solid foundation of good financial habits

– Now it is time to up the ante – retirement is within sight and you now have a limited number of years remaining to adjust for any errors or shortfalls

– “We think in generalities, but we live in detail.” – Alfred North Whitehead

– Let’s dig into the details – time is running short

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– Help your client build their dream

– Develop a more accurate ballpark estimate

– Consider having your client paying down the mortgage

– Emphasize to your client to reduce consumer debt and not take on additional consumer debt –“spend only what your client can afford” (i.e., retirees need to earn interest – not pay it).

– Discuss with your client taking care of their health

– Encourage your clients to develop independence with their dependents

– Review with your client insurance coverage

– Help your client obtain defined benefit plan estimates

– Help your client obtain health insurance estimates

– Help your client obtain second and third opinions from professional advisers

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– Help your client “Color in the Dream”

– Help your client “Test Drive the Dream”

– Help your client to do a final review of Social Security and Pension benefits

– Help your client assist their long-term care insurance plan

– Help your client continue “inter-vivos” financial planning

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RETIREMENT PLANNING CHECKLIST• Checklist for Less Than 12 Months to Retirement

– “The power of accurate observation is commonly called cynicism by those who have not got it.” -George Bernard Shaw

– Get Your Client’s Organized – Most people have retirement and savings accounts scattered in various places

• Get your client’s financial transactions automated

• Simplify your client’s financial affairs

– Clients Need to File for Defined Benefits

– Clients Need to Finalize Their Withdrawal Strategy

– Clients Need to Finalize Their Health Insurance Coverage

– Clients Need to Finalize Their Long-Term Care Insurance Strategy

– Complete Any Rollovers

– MAKE SURE DESIGNATED BENEFICIARIES ARE ACCURATELY IDENTIFIED

– Clients Need to Give Notice of Their Employer13

RETIREMENT PLANNING CHECKLIST• Now We Have Retired – What Now –

– Annual Budget, Asset and Cash Flow Review

– Healthy Habits

– Don’t Forget Required Minimum Distributions – Traditional IRAs require minimum distributions beginning at age 70 ½ - More detailed discussion on this topic latter in our Webinar presentation

– Update Your Estate Plan Periodically

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R E T I R E M E N T P L A NP R O D U C T S R E V I E W

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RETIREMENT PLAN PRODUCTS REVIEW• Which plan is best for my business / organization?

• What are the basic plan requirements?

• How do I maintain my plan?

• How can I keep my plan compliant with the tax law?

• What if I make mistakes?

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RETIREMENT PLAN PRODUCTS REVIEW• Lots of Benefits – when you set up or participate in an employee retirement

plan

• Choosing A Retirement Solution for Your Small Business

• Choose a Retirement Plan

– Profit Sharing Plans

– §401(k) Plans (Automatic Enrollment §401(k) Plans and Safe Harbor §401(k) Plans)

– §403(b) Tax-Sheltered Annuities

– SIMPLE IRA Plans

– SEP Retirement Plans17

LOTS OF BENEFITS FROM RETIREMENT PLANS• Compounding Counts!

* Assuming 10% annual Earnings compounded monthly

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Your Monthly Savings

Your Savings Growth

in 5 years*

Your Savings Growth

in 15 years*

Your Savings Growth in 30

years*

$100.00 $7,808. $41,792. $227,933.

$300.00 $23,425. $125,377. $683,798.

$500.00 $39,041. $208,962 $1,139,663.

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LOTS OF BENEFITS FROM RETIREMENT PLANS• Start Early – Two Young Workers – April and June – The chart below shows the comparison of

the two saving strategies –

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$300 monthly savings with 10%

compounded savings

April, who started saving early, yielded -

June, who started saving later, yielded -

Contributions

Total Accumulated Contributions Account Balance Contributions

Total Accumulated Contributions Account Balance

Year 10 $36,000 $36,000 $61,966 $0 $0 $0

Year 20 0 36,000 167,743 36,000 36,000 61,966

Year 30 0 36,000 454,089 36,000 72,000 229,709

Year 40 0 36,000 1,229,236 36,000 108,000 683,798

Year 45 $0 $36,000 $2,022,474 $18,000 $126,000 $1,148,483

LOTS OF BENEFITS FROM RETIREMENT PLANS• Benefits Now, Benefits Later

– Business benefits include:

• Employer contributions are tax deductible

• Assets in a plan grow tax-free

• Business may receive tax credits and other incentives for starting a retirement plan

• Flexible plan options are available, and

• A retirement plan can attract and may help retain better employees, thus reducing new employee training costs

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LOTS OF BENEFITS FROM RETIREMENT PLANS• Benefits Now, Benefits Later

– Tax on employee contributions is deferred until distributed

– Investment gains in a plan are not taxed until distributed

– Retirement assets can be carried from one employer to another

– Contributions can be made easily through payroll deductions

– Saver’s Credit is available, and

– Better financial security is available upon retirement

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LOTS OF BENEFITS FROM RETIREMENT PLANS• The Life Cycle of a Retirement Plan Program

– Initial steps in setting up a retirement plan

– Working stages include:

• Create the appropriate climate regarding retirement planning for the participants

• Establishing the Plan

• Operating the Plan

– Terminating a Plan

– Fixing / correcting plan defects and operational errors

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C H O O S I N G A R E T I R E M E N T P L A N S O L U T I O N F O R Y O U R S M A L L B U S I N E S S

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CHOOSING A RETIREMENT PLAN SOLUTION FOR YOUR SMALL BUSINESS• Why Save?

• Any Tax Advantages?

• Any Other Incentives?

• A Few Retirement Facts

– Private sector retirement vehicles include either Individual Retirement Arrangements (IRAs), Defined Contribution (DC) Plan, or Defined Benefit Plans (DB)

– Small businesses may choose to offer these vehicles to their employees

– Many financial institutions and retirement plan practitioners make available one or more of these vehicles (or services, i.e., Third Party Administration)

– Many of these retirement plans have been pre-approved by the Internal Revenue Service

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CHOOSING A RETIREMENT PLAN SOLUTION FOR YOUR SMALL BUSINESS• IRA Based Plans

– Payroll Deduction IRA

– SEP (Simplified Employee Plan)

– SIMPLE IRA Plan

• Defined Contributions Plans

– Profit Sharing

– Traditional §401(k)

– Safe Harbor §401(k)

– Automatic Enrollment §401(k)

– Money Purchase Pension Plan

• Defined Benefit Plans25

CHOOSING A RETIREMENT PLAN SOLUTION FOR YOUR SMALL BUSINESS• IRA Based Plans – Key Characteristics

– Key Advantage

– Employer Eligibility

– Employer’s Role

– Contribution to the Plan

– Maximum Annual Contribution (per participant)

– Contributor’s Options

– Minimum Employee Coverage Requirements

– Withdrawals Loans & Payments

– Vesting26

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CHOOSING A RETIREMENT PLAN SOLUTION FOR YOUR SMALL BUSINESS• Profit Sharing Plans & Profit Sharing Plans With a §401(k) Feature

– Key Advantage








– Vesting27

CHOOSING A RETIREMENT PLAN SOLUTION FOR YOUR SMALL BUSINESS• Defined Benefit Plans

– Key Advantage








– Vesting28

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PROFIT SHARING PLANS FOR SMALL BUSINESSES• Why Profit Sharing Plans?

• Establishing a Profit Sharing Plan

– Adopt a written plan document

– Arrange a trust for the plan’s assets

– Develop a good recordkeeping system, and

– Provide plan information (timely) to employees eligible to participate

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PROFIT SHARING PLANS FOR SMALL BUSINESSESOPERATING A PROFIT SHARING PLAN

• Participation

• Contributions

• Vesting

• Nondiscrimination

• Investing profit sharing plan monies

OPERATING A PROFIT SHARING PLAN

• Fiduciary responsibilities

• Disclosing plan information to participants

• Reporting to government agencies

• Distributing plan benefits

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PROFIT SHARING PLANS FOR SMALL BUSINESSES• Fiduciary Responsibilities

– Basic Responsibilities

– Limiting Liability

– Hiring a Service Provider

– Providing Information in Participant-Directed Plans

– Prohibited Transactions and Exemptions

– Bonding

• Disclosing Plan Information to Participants

– Summary Plan Description (SPD)

– Summary of Material Modification (SMM)

– Individual Benefit Statement (IBS)

– Summary Annual Report (SAR)

– Blackout Period Notice31

PROFIT SHARING PLANS FOR SMALL BUSINESSES• Reporting to Government Agencies

– Form 5500 Annual Return/Report of Employee Benefit Plans

• Form 5500

• Form 5500 SF

• Form 5500 EZ ($250,000 threshold)

– Form 1099-R – Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

– Form 8955-SSA

• Distributing Plan Benefits

– Lump sum distributions

– Roll over their account to an IRA or another employer’s retirement plan, or

– Take periodic distributions

• Terminating a Profit Sharing Plan

• Compliance 32

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PROFIT SHARING PLANS FOR SMALL BUSINESSES• A Profit Sharing Plan Checklist

– Have you decided to hire a financial institution or retirement plan professional to help with setting up and running the plan?

– Have you adopted a written plan that includes the features you want to offer, such as whether contributions will be discretionary, how contributions will be allocated and when they will be vested?

– Have you notified eligible employees and provided them with information to help in their decision making?

– Have you arranged a trust for the plan assets or will you set up the plan solely with insurance contracts?

– Have you developed a recordkeeping system?

– Have you decided how much to contribute to the plan this year?

– Are you familiar with the fiduciary responsibilities?

– Are you prepared to monitor the plan’s service providers?

– Are you familiar with the reporting and disclosure requirements of a profit sharing plan?

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§ 4 0 1 ( K ) P L A N S F O R S M A L L B U S I N E S S

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§401(K) PLANS FOR SMALL BUSINESS• Why §401(k) Plans

– A well-designed 401(k) plan can help attract and keep talented employees

– It allows participants to decide how much to contribute to their accounts

– Employers are entitled to a tax deduction for contributions to employees’ accounts

– A §401(k) plan benefits a mix of rank-and-file employees and owners/managers

– The money contributed may grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles

– Contributions and earnings generally are not taxed by the Federal Government or by most state governments until they are distributed

– A §401(k) plan may allow participants to take their benefits with them when they leave the company, easing administrative responsibilities

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§401(K) PLANS FOR SMALL BUSINESS

• Establishing a §401(k) Plan

– Types of §401(k) Plans

• A traditional §401(k) Plan

• A safe harbor §401(k) Plan, or

• An automatic enrollment §401(k) Plan

• Four initial steps for setting up a §401(k) Plan

– Adopt a written plan document

– Arrange a trust for the plan’s assets

– Develop a recordkeeping system, and

– Provide plan information to employees eligible to participate

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• A traditional §401(k) Plan– Offers maximum flexibility among the three (3) types of plans

– Employer flexibility over employer contributions

– Can be subject to a vesting schedule

– Annual testing ensures that benefits are not discriminatory

• Safe Harbor §401(k) Plan– Not subject to annual contribution testing (in most cases)

– Employees must receive a certain level of employer contributions

– Mandatory employer contributions must be fully vested when contributed to the Plan

• Automatic Enrollment §401(k) Plan– Allows for automatic enrollment of employees and place deductions from employees salary in certain

default investments

– Participant may elect otherwise (both contribution level and investment options)

– Designed to be an effective way for employers to increase participation in their §401(k) Plan37


OPERATING A §401(K) PLAN

• Participation

• Contributions

• Vesting

• Nondiscrimination

• Investing §401(k) Plan Monies

OPERATING A §401(K) PLAN

• Fiduciary responsibilities

• Disclosing plan information to participants

• Reporting to government agencies

• Distributing plan benefits

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• Operating A §401(k) Plan – Contributions

– Traditional §401(k) Plan

– Safe Harbor §401(k) Plan – Two Common Matching Contribution Formulas Designed to Eliminate Annual Testing (i.e., 100% of first 3% and 50% of next 2% or 3% Non Elective Contribution)

– Roth Contributions

– Contribution Limits:

• Employer Contribution Limit - 100% of Employee’s Compensation or $54K for 2017 ($53K for 2015 and 2016)

• Employee Contribution Limit – 18K for employee and 6K for catch-up employee contribution (age 50 or over)

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§401(K) PLANS FOR SMALL BUSINESS• A §401(k) Plan Checklist

– Have you determined which type of 401(k) plan best suits your business?

– Have you decided to hire a financial institution or retirement plan professional to help with setting up and running the plan?

– Have you decided whether to make contributions to the plan, and, if so, whether to make non-elective and/or matching contributions? (Remember, you may design your plan so that you may change your non-elective contributions if necessary due to business conditions.)

– Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?

– Have you notified eligible employees and provided them with information to help in their decision making?

– Have you arranged a trust for the plan assets or will you set up the plan solely with insurance contracts?

– Have you developed a recordkeeping system?

– Are you familiar with the fiduciary responsibilities?

– Are you prepared to monitor the plan’s service providers?

– Are you familiar with the reporting and disclosure requirements of a 401(k) plan?

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S P O N S O R S O F § 4 0 3 ( B ) P L A N S O R T A X S H E L T E R E D A N N U I T I E S

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SPONSORS OF §403(B) PLANS OR TAX SHELTERED ANNUITIES • Key Points to Remember

– Written Plan Requirement

– Ineligible Employer

– Universal Availability

– Depositing Elective Deferrals

– Excess Elective Deferrals

– Will Have to Restated Plan Document by March 31, 2020

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S I M P L E I R A P L A N S F O R S M A L L B U S I N E S S E S

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• What Is A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers)

– An IRA plan

– Must have 100 or fewer employees (who earned $5,000 or more during preceding calendar year)

– You may not adopt and operate another retirement plan

• Other Advantages of a SIMPLE IRA plan

– Easy to set up and operate

– Employees can contribute, on a tax-deferred basis (generally through payroll deductions)

– Employers may choose to either match employee contributions or contribute a fixed percentage of eligible pay

– May be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting a SIMPLE IRA plan

– Administrative costs are low

– You are not required to file annual financial reports (Form 5500 series or the Summary Annual Report)44

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• Establishing the Plan

– Chose a financial institution to maintain employees’ SIMPLE IRAs

– Adopt a pre-approved SIMPLE IRA plan (Form 5304-SIMPLE or Form 5305-SIMPLE)

– Execute the selected IRS Form

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• Operating the Plan

• Participants in a SIMPLE IRA Plan

• Enrolling Employees in SIMPLE IRA Plan

– Plan may only use a calendar year and may be set up (or adopted) as late as October 1st

– Employer must set up SIMPLE IRA for each employees with contributions under the Plan

– Must receive information about the plan and can rely on page 3 of the Form 5304-SIMPLE and Form 5305-SIMPLE for a model notice

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• Employee Contributions

– Maximum employee contribution - $12,500 for 2016 and 2017

– After 2017, the limit is subject to cost-of-living adjustments

– Catch-up (employees age 50 or over) may contribute an additional $3,000 for 2016 and 2017 (also this limit is subject to cost-of-living adjustments beginning in calendar year 2018)

• Employer Contributions

– A 2% non-elective employer contribution of the participant’s compensation (not to exceed $270,000 in 2017 ($265,000 in 2016)), regardless of whether participant made a contribution to the SIMPLE IRA as a salary deferral

– A 100% matching contribution up to 3% of compensation, where only the participating employees who have elected to make contributions will receive an employer matching contribution

– Each year Employer must choose which method that will use and communicate this decision prior to the 60-day election period (i.e., 60 days prior January 1st of the following calendar year)

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• Rollovers to a SIMPLE IRA Plan

– During first two years of participation in a SIMPLE IRA plan, you may roll over amounts from another SIMPLE retirement account

– After this two year period, you may roll amounts from qualified retirement plan or an IRA into a SIMPLE retirement account

• Depositing and Investing Plan Contribution

– DOL deposit rule for employee contribution – 7th business following the withholding by the employer

– Employer contribution must be made by due date (including extensions) for filing your business’ Federal income tax return

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• How Does a SIMPLE IRA Plan Work? – Example 1

Elizabeth works for the Rockland Quarry Company (Rockland), a small business with 50 employees. Rockland has decided to establish a SIMPLE IRA plan for its employees and will match its employees’ contributions dollar-for-dollar up to 3 percent of each employee’s salary. Under this option, if a Rockland employee does not contribute to his or her SIMPLE IRA, then that employee does not receive any matching employer contributions from Rockland.

Elizabeth has a yearly salary of $50,000. If she decides to contribute 5 percent of her salary to her SIMPLE IRA, Elizabeth’s yearly contribution will be $2,500 (5 percent of $50,000). The Rockland matching contribution will be $1,500 (3 percent of $50,000). Therefore, the total contribution to Elizabeth’s SIMPLE IRA that year will be $4,000 (her $2,500 contribution plus the $1,500 contribution from Rockland). The financial institution holding Elizabeth’s SIMPLE IRA has several investment choices and Elizabeth is free to choose which ones suit her best.

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SIMPLE IRA PLANS FOR SMALL BUSINESSES (CON’T)• How Does a SIMPLE IRA Plan Work? (Con’t) – Example 2

Austin works for the Skidmore Tire Company (Skidmore), a small business with 75 employees. Skidmore has decided to establish a SIMPLE IRA plan for its employees and will make a 2 percent non-elective contribution for each of them. Under this option, even if an eligible Skidmore employee does not contribute to his or her SIMPLE IRA, that employee would still receive an employer non-elective contribution to his or her SIMPLE IRA equal to 2 percent of salary.

Austin has a yearly salary of $40,000 and has decided that this year he simply cannot contribute to his SIMPLE IRA. Even though Austin will not contribute this year, Skidmore must make a non-elective contribution of $800 (2 percent of $40,000). The financial institution holding Austin’s SIMPLE IRA has several investment choices, and Austin has the same investment options as the other plan participants.

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• Employee Communications

– Summary Description – Use of Form 5304-SIMPLE or Form 5305-SIMPLE provided by financial institution (along with any procedures for withdrawals and transfers)

– Annual Election Notice

• Employee’s right to make salary deferral elections for the following year

• Employer’s decision to make either matching or non-elective contributions for the following year

• Reporting to the Government

– No Form 5500 series filings

– Form 1099-R

– Form 5498 – Individual Retirement Arrangement Contribution Information (handled by financial institution)

• When Employees Want to Stop Contributions

– Must be permitted to suspend salary deferrals at their request

– Participant may not elect to defer their salary again until the following calendar year53

SIMPLE IRA PLANS FOR SMALL BUSINESSES• Distributions

– Take lump sum distribution of their account

– Roll over their account to an IRA or another employer’s retirement plan

– Subject to income tax in the year received (except for any amount that is rolled over)

– Subject additional 10% tax if distribution is received prior to age 59 1/2

– Additional tax is increased to 25% if withdrawal occurs within 2 years of beginning participation in the SIMPLE IRA plan

– Withdrawals known as “Required Minimum Distributions” must be distributed by April 1st of the year following the year the participant reaches age 70 ½

– After the age 70 ½ or initial year, the participant must receive a required minimum distribution for each year by December 31 of that year

• Terminating the Plan

• “Mistakes in Plan Operation” must be corrected. Note that you are not permit to “Self-Correct”, but must use the IRS Voluntary Correction Program (VCP) and pay a sanction fees based on the number participants

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SIMPLE IRA PLANS FOR SMALL BUSINESSES• SIMPLE IRA PLAN Checklist

– Choose a financial institution to set up your SIMPLE IRA plan

– Enroll your employees and start salary reduction contributions

– Deposit contributions timely

– Tell your employees about their rights under the plan

– Monitor your financial institution/trustee

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S E P R E T I R E M E N T P L A N S F O R S M A L L B U S I N E S S

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Simplified Employee Pension (SEP)

– Easy and low-cost retirement plan

– Employer contributions to traditional individual retirement accounts (SEP-IRAs) for all employees (including owners)

– No conventional retirement plan start up expense and allows for up to 25% of each employee’s compensation

REMEMBER THIS PLANNING TIP – ALL QUALIFIED PLAN ARRANGEMENTS MUST BE IN PLACE AT LEAST BY THE LAST DAY OF THE CALENDAR OR FISCAL YEAR. BUT AN SEP MAY BE ESTABLISHED AS LATE AS THE LAST DATE OF THE DUE DATE (INCLUDING EXTENSIONS) FOR THE TAX RETURN

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Advantages of an SEP

– Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on the investments

– You are not locked into making contributions every year. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs

– Generally, you do not have to file any documents with the government

– Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs.

– You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting the plan

– Administrative costs are low

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Key Definitions

– Employee – Anyone who received compensation from the business

– Eligible Employee:

• Is at least age 21, and

• Has performed service for you in at least 3 of the last 5 years

– All eligible employees must participant (i.e., you can’t exclude part-time employees, seasonal employees, and employees who die or terminate employment during the year)

– There is no requirement to cover:

• Employees that are covered by a collective bargaining agreement

• Nonresident alien employees who did not earn income from you, or

• Employees who received less than $600 (2015, 2016, and 2017) in compensation during the year (subject to cost-of-living adjustments)

– Compensation – generally includes the pay an employee received from you for a year’s work. However you must follow the definition of compensation included in your plan document

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SEP RETIREMENT PLANS FOR SMALL BUSINESS • Establishing the Plan

– Step #1 – Form 5305-SEP

– Step #2 – Execute Form 5305-SEP

– Step #3 – Give employees a copy of Form 5305-SEP

• Not considered adopted until each employee is provided with a written statement

• Statement includes – (a) any different terms than other IRAs the employee may have; (b) copy of any amendment within 30 days of the effective date of the amendment, and (c) report of employer contributions by January 31 of the following year

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Operating the Plan

– Contributions to SEP-IRAs

• How Does a SEP Work?

Quincy Company (Quincy) decides to establish a SEP for its employees. Quincy has chosen a SEP because its industry is cyclical in nature, with good times and down times. In good years, Quincy can make larger contributions for its employees, and in down times it can reduce the amount. Quincy knows that under a SEP, the contribution rate (whether large or small) must be uniform for all employees. The financial institution that Quincy has selected to be the trustee for its SEP has several investment funds from which the Quincy employees can choose. Individual employees have the opportunity to divide their employer’s contributions to their SEP-IRAs among the funds made available to Quincy’s employees.

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Employee Communications

– You must give employees a copy of IRS Form 5305-SEP and its instructions (or other document that was used to establish the plan). When new employees become eligible to participate in the plan, they also must receive a copy of the plan

– You must also provide a written statement containing information about the terms of the SEP, how changes are made to the plan, and when employees are to receive information about contributions to their accounts.

– In addition to the information above, the financial institution provides an annual statement for each participant’s SEP-IRA, reporting the fair market value of that account

– The financial institution also gives participating employees a copy of the annual statement filed with the IRS containing contribution and fair market value information

– When an employee participating in the plan receives distributions from his/her account, the financial institution sends that employee a copy of the form that is filed with the IRS for the individual’s distribution

– The financial institution will notify the participant by January 31 of each year when a minimum distribution is required

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Reporting to the Government

– No annual reporting (i.e., Form 5500 series ) r reporting a Form W-2

– Financial institutions will provide Form 5498, IRA Contribution Information to participant for the prior calendar year by May of the following calendar year

– Form 1099-R for distribution reporting

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SEP RETIREMENT PLANS FOR SMALL BUSINESS• Distributions

– No loans are permitted

– Participants can make withdrawals at anytime

– Early withdrawal penalty or additional 10% tax for withdrawal prior to age 59 ½

– Rules regarding required minimum distribution (age 70 ½ ) apply to SEPs

• Terminating the Plan

• Mistakes – and How to Correct Them – IRS’ EPCRS program 65

SEP RETIREMENT PLANS FOR SMALL BUSINESS• YOUR SEP – A QUICK Review

– Choose a financial institution to set up your SEP

– Sign the agreement; set up the SEP-IRAs

– Inform your employees about the plan

– Deposit contributions by the due date of your tax return

– Monitor your financial institution/trustee

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T E R M I N A T I N G A P L A NG E N E R A L O V E R V I E W

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TERMINATING A PLAN – GENERAL OVERVIEW• An Employer May Terminate Its Retirement Plan and for Various Reasons –

– A voluntary decision to terminate the plan

– Bankruptcy

– Part of a transaction where a business is sold to another company or purchases another company (i.e., merger)

– Change in type of retirement plan (i.e., from a SEP to Profit Sharing with a §401(k) feature)

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TERMINATING A PLAN – GENERAL OVERVIEW (CON’T)• Participant’s Rights Upon Plan Termination

– Participants must be immediately 100% vested

– In a §401(k) Plan, this would include any employer matching and profit-sharing contributions, respectively

• Distribution of Assets by a Terminating Plan

– Distribute assets after termination as soon as it is administratively feasible

– Permit distributions as “lump sum” or “roll over” to an IRA or another qualified plan

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TERMINATING A PLAN – GENERAL OVERVIEW (CON’T)• Employer’s Obligations

– Amend the Plan document (both for terminate aspects and any required plan amendments)

– Provide required notices to plan participants

– Provide a rollover notice to participants and beneficiaries

– Pay any outstanding required employer contributions to the plan

– Vest all “affected participants” 100%

– Distribute assets as soon as administratively feasible (generally within a 12 month period)

– May file Form 5310 with Internal Revenue Service

– File final Form 5500 return

– File Form 1099-R to reflect the distribution of assets to participants and/or beneficiaries70

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C O R R E C T I N G P L A N E R R O R S

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CORRECTING PLAN ERRORS – EPCRS • Employee Plans Compliance Resolution System (EPCRS)

– This is IRS’ remedy for any mistakes, with respect to a Plan and a Plan Sponsor’s ability to avoid the consequences of plan disqualification

– This guidance is designed to fixed both Plan document issues as well as Plan operational issues

• There are three ways to correct mistakes under EPCRS:

– Self-Correction Program (SCP)

– Voluntary Correction Program (VCP)

– Audit Closing Agreement Program (Audit CAP)72

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CORRECTING PLAN ERRORS –EPCRS– SIMPLE IRA PLAN FIX-IT• Example #1 –

– MISTAKE: You haven’t updated your SIMPLE IRA plan document for current law changes

– FIND THE MISTAKE: Determine if your plan document is the latest IRS-approved SIMPLE IRA plan document from your financial institution or a current model plan

– FIX THE MISTAKE: Adopt the latest version of your financial institution’s IRS-approved SIMPLE IRA plan document or current IRS Form 5304-SIMPLE or Form 5305-SIMPLE

– AVOID THE MISTAKE: Make sure you adopt the most current SIMPLE IRA plan document

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CORRECTING PLAN ERRORS –EPCRS– SIMPLE IRA PLAN FIX-IT• Example #2 –

– MISTAKE: You excluded an eligible employee from participating

– FIND THE MISTAKE: Review plan document sections on eligibility and participation. Check whether you enrolled employees at the proper time

– FIX THE MISTAKE: Make corrective contributions to place affected employees in the position they would have been in if no mistake was made

– AVOID THE MISTAKE: Review the participation status of all employees at least annually

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CORRECTING PLAN ERRORS – EPCRS (CON’T) – SIMPLE IRA PLAN FIX-IT• Example #3 –

– MISTAKE: You made incorrect employer contributions for eligible employees.

– FIND THE MISTAKE: Compare the amounts you contributed for each employee with the contribution percentage provided in the annual notice multiplied by each employee’s compensation. Review records to determine if you timely deposited employer contributions.

– FIX THE MISTAKE: Contribute make-up amounts, adjusted for earnings through the date of correction. For excess contributions, distribute them or use the retention method.

– AVOID THE MISTAKE: Establish procedures to ensure that employer contributions are equal to the amount provided for in the annual notice and are timely deposited.

• NOTE: You may not be able to use the SCP to correct this mistake, but rather the VCP. This will required a filing with the IRS and a payment of a user fee of $250 and 10% of any excess amounts contributed to participant accounts in error (if you use the retention method to correct error).

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EXPLORING THE TAX AND PLANNING ASPECTS OF OUR PRIVATE AND PUBLIC RETIREMENT PLAN

SYSTEMS

QUESTIONS AND ANSWERS

Thank you for Participating in Today’s Webinar

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THE SCOOP – UPCOMING DATES • October 18, 2017

• November 1

• December 13, 2017

• Held at 8:00 am and 12:00 pm Central time

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UP COMING ETHICS CLASSES

• Ethics Part 1 and Part 2 (November 13)

• Ethics Part 1 and Part 2 (November 14)

• Ethics Part 1 and Part 2 (December 15)



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UP COMING WEBINARSHTTP://WWW.CALT.IASTATE.EDU/CALENDAR-NODE-FIELD-SEMINAR-DATE/MONTH

• Iowa Farm Leases (Legal Issues) October 12

• Iowa Rural Property (Legal Issues) October 13

• New Law Update October 17

• New Partnership Audit Rules October 19

• Farm Expenses October 24, 2017

• Farm Income October 26, 2017

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THE CALT STAFFW I L L I A M E D W A R D S

I N T E R I M D I R E C T O R F O R T H E B E G I N N I N G F A R M E R C E N T E R

I N T E R I M D I R E C T O R F O R T H E C E N T E R F O R A G R I C U L T U R A L L A W A N D T A X A T I O N

W E D W A R D S @ I A S T A T E . E D U

5 1 5 - 2 9 4 - 6 1 6 1

4 7 3 H E A D Y

5 1 8 F A R M H O U S E L N

A M E S . I O W A 5 0 0 1 1

K R I S T I N E A . T I D G R E N

A S S I S TA NT D I R E C TO R

E - M A I L : K T I D G R E N@ I A S TAT E . E D U

P H O N E : ( 5 1 5 ) 2 9 4 - 6 3 6 5

FA X : ( 5 1 5 ) 2 9 4 - 0 7 0 0

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THE CALT STAFFKRISTY S. MAITRE

TAX SPECIALIST

E-MAIL: [email protected]

PHONE: (515) 296-3810

FAX: (515) 294-0700

TIFFANY L. KAYSER

PROGRAM ADMINISTRATOR

E-MAIL: [email protected]

PHONE: (515) 294-5217

FAX: (515) 294-0700

our instructor for the two day seminar ......– avoid formal retirement planning with your client...

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