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Not Too Late For a 2020 Retirement Plan

Passed in December 2019, the SECURE Act makes it easier and less expensive for business owners to establish and administer new qualified retirement plans, such as a 401(k) Plan, Profit Sharing Plan, Defined Benefit Plan and SEP-IRA. Read on to learn more about the SECURE Act of 2019 and new available options.

For many years, tax practitioners had limited options for their clients regarding retirement tax deductions, unless the client had setup a retirement plan vehicle prior to the end of the tax year. The enactment of the SECURE Act of 2019 leveled the playing field with IRA based retirement options. The SECURE Act of 2019 allows new qualified retirement plans to be established up until the extended due date of the plan sponsor’s (the company) tax return. This has given companies the option to evaluate all retirement plan options and their respective funding options. So, what are the new options available?

401(k) Plan. We can establish this plan to allow for a non-elective contribution for the 2020 plan year. For 2021, the plan would allow for employee deferrals, both pretax and Roth as well as discretionary contributions from the company as matching or non-elective contributions. The plan can be custom designed to meet the company’s needs and the retirement goals of your employees.

Profit Sharing Plan. Many times it is difficult to determine the outcome of the company’s year until after the books are closed at year-end. As we all know, many financial outcomes aren’t revealed until months after the end of the tax year. With the option of a profit sharing plan, the company’s management can evaluate the profitability of the company and then decide annually if a contribution is going to be made to the plan. These plans do not have a required contribution and are not based upon profitability. There are a variety of methods that can be used to allocate the contribution to eligible employees. We can assist you in designing the plan to meet the company’s expectations and pass the required nondiscrimination tests required by the Internal Revenue Service (IRS).

Defined Benefit Plan. If your company has a significant profit and anticipate the same trends for many years, then a defined benefit plan could be a definite option for your company. The plan will give a guaranteed benefit to your employees upon retirement which means these plans have required funding each year. Defined Benefit Plans provide great benefits and large tax deductions but should be evaluated thoroughly to ensure it can be sustained by the company for many years.

SEP-IRA. The SEP-IRA plan has been the primary option for most companies evaluating retirement plan options for a previous year. SEP-IRA plans are a simplified retirement plan option that provides a predetermined method of retirement funding for the program. The SEP-IRA is the lowest cost option in regard to administration but provides little to no flexibility for the company.

Now with more options for establishing a retirement program for your company post close of year, companies and tax practitioners have more opportunities for retirement tax planning. Unlike prior years where projected income and decisions had to be made without knowing how the company’s profitability would be is a thing of the past. We would welcome any discussions you would like to have regarding your 2020 or 2021 retirement programs and how we can assist you in designing and implementing your program.