Retirement Plan Options

Roth IRA

Roth IRA Defined:


This is an individual retirement account allowing a person to set aside after-tax income, up to a set amount each year. Both earnings on the account, and withdrawals after age 59½ are tax-free.


Terms of this plan:


  • Contribution limits: $6000.

  • $7000 if age 50 or older.


Plan Guidelines:  


  • All contributions are made to your Roth IRA with after-tax dollars. Because of this, non-deductible earned contributions can be withdrawn tax free.  

  • You can withdraw contributions you made to your Roth IRA anytime, tax and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA. 

  • Withdrawals from a Roth IRA that you have kept for less than five years are subject to penalty fees.  There are also fees if you withdraw before the age of 59 ½.  

  • Exceptions to the Rule:  There are penalties associated with early amounts withdrawn in certain instances, however the terms are shown in the following list. 


Earnings accumulated are withdrawn tax free provided that:


  • 5 years has passed since Jan 1 of the year of initial deposit.

  • Account holder is 59.5 or older.

  • Money used for first-time purchase of principal residence up to $10k.

  • Account holder is disabled or has died.


Other Features and Benefits:


  • This plan takes 15 months of contribution for the current tax year, the upcoming is date would be April 15, 2020.

  • Contribution is the lesser of $6000 or 100% of earned income.

  • A married employee may contribute an additional $6000 to a nonworking/low income spouse’s IRA.

  • Anyone over 50 years old can contribute up to $7000.

  • You can contribute to a Roth IRA even if you participate in a plan with your employer.

  • Contributions can be made past age 70.5 as long as its earned income.

Roth IRA Information Continued:


  • No required minimum distribution.

  • Contributions made can be withdrawn tax and penalty free at any age and any time.

  • A minor can be named beneficiary on this type of retirement account.

  • Education and medical expenses may qualify for distribution exemption.

  • Rule 72(t) was set by the IRS for early retirees as a distribution exemption for penalty-free early. withdrawal from a retirement account once certain criteria has been met.  

  • Contributions are made according to Adjusted Gross Income (AGI).

  • A withdrawal made before the first 5 years has passed will trigger a 10% penalty. 

  • A single person with an AGI of $137k or less may contribute the full amount.

  • With single person deposit amounts ranging between $122k-$137k, the ability to contribute phases out.

  • Married and joint tax return filers have a limit of $193k or less or they may contribute the full amount.

  • With married parties depositing amounts between $193k-$203k, the ability to contribute phases out.


*Note: All numbers and facts stated are as of 5/23/19

** AGI is computed at the bottom of your Form 1040 


Clause Penalty for Over-Contributing


  • This is the responsibility of the client.  Funds deposited that are less than the set annual deposit requirements may make up the overall annual balance.  This is up to the participant in the plan, however balances can always be checked and I am available for questions as they arise.





Roth 401(k)


Roth 401(k) Defined:


This is a hybrid retirement plan that combines the best features of a traditional 401(k) and a Roth IRA. You must be an employee and contributions are made using after-tax dollars. Contributions and earnings are withdrawn tax-free under certain guidelines. 


Terms of the plan:


  • Contribution limit is $19,000, $19,500 for 2021.

  • Anyone over 50 years old can contribute an additional $6,000, $6,500 for 2021.

  • Qualified distributions can start at age 59.5.

  • Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.

  • The distribution age can be delayed if the individual is still employed at the company that holds the 401(k) and is not a 5% or more owner of the business sponsoring the plan.


Plan Guidelines:


  • No income limitations.

  • The account must have been held for at least five years before withdrawals can occur.

  • Withdrawals must happen on the account of disability, on or after death of the account owner.




Traditional IRA


Traditional IRA Defined:


This is a retirement plan where all contributions are tax-deductible on both state and federal tax returns for the year they were made.  Anyone with earned income who is younger than 70.5 can contribute to the plan. 


Terms of the plan:


  • Contribution is the lesser of $6,000 or 100% of earned income 

  • Anyone over 50 years old can contribute up to $7,000

  • The maximum tax deduction is the lesser of $6,000 per individual ($7,000 if 50 and older) or $12,000 per couple, or 100% of taxable compensation for the year.

  • Deductions get reduced when you start making more than $64,000 individual $101k married filed jointly. 

  • Whether the contribution is tax deductible depends on your income and whether you or your spouse are covered by a retirement plan through your employer plan, such as a 401(k).

  • Withdrawals in retirement are taxed at ordinary income tax rates, earnings grow tax deferred.

  • Qualified distributions can start at age 59.5.

  • Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.


Plan Guidelines:


  • IRAs are often opened after you have put enough money into your 401ks to get your employer match.

  • Distributions from an inherited IRA are not subject to penalty even if the distributions occur before the beneficiary reaches age 59.5.




SEP - IRA Plans


SEP-IRA Plans Defined:  Simplified Employee Pension Plan  (*Ideal for small business to attract and retain employees).


Terms of the plan: 


  • No government filings

  • Contributions only from employer using tax-deductible dollars

  • For sole proprietors, partnerships, corporations


All contributions for Simplified Employee Pension plans, or SEP-IRA’s, are made by the employer. Employers have to make the contributions for everyone at the same percentage.  They cannot exclude any employee eligible for benefits. That can be a plus for very small or sole-proprietorship businesses, because it can allow them to put aside a lot of money with very little expense or paperwork, since they don’t have to file anything with the government.


Plan Guidelines: 


The maximum contribution can’t exceed the lesser of:


  • $57,000, $58,000 for 2021.

  • 25% of the employee’s net compensation.


Additional Information: 


  • For self-employed individuals, the IRS defines compensation as your net earnings from self-employment.  This is reduced by one-half of your self-employment tax and by your entire SEP-IRA contribution, up to a compensation limit of $275k (indexed) 2018.  

  • The deadline for applying is employer’s tax-filing deadline including extensions. 

  • Besides the SEP-IRA contribution made by the employer, employees can also save, in their own IRAs, up to $5,500 for the 2015 and 2016 tax years, or $6,500 if age 50 or older. 

  • If you are an owner-only or sole proprietorship business, you can save two ways.  This is a great way to maximize your retirement savings while lowering your taxes.

  • Sole proprietors, partnerships and corporations, including S corporations, can set up SEP-IRAs. 

  • A small company may be eligible for a $500 tax credit for 3 tax years to offset startup costs. They don’t have to contribute every year. If they have a down year, they can contribute a small amount or not at all. However, if they are having a great year, then they can contribute more. 




SEP-IRA Plans Continued:


  • SEP-IRAs are very flexible in that way. Employee and the business owner who are eligible must establish a traditional IRA (often labeled SEP-IRA) which the employer deposits SEP contributions. 

  • Employees do not pay taxes on SEP plan contributions. However, distributions amounts plus any earnings are subject to income taxes. 

  • Contribution via Pro-Rata (same %), Flat-Dollar, or Social Security Integration (Higher-paid employees receive a larger %, however watch for regulatory requirements). 

  • Generally employees who are 21, earns over $550, and will need to have worked 3 out of 5 preceding years for employer are qualified.  

  • Employees can use the same account to make their regular traditional IRA contributions.  However, please note that the total contribution amount will be totaled across plans. 

  • Contributions are 100% vested meaning employees can take the contributions any time even if no longer employed with the company.


Withdrawals in retirement are taxed at ordinary income tax rates, and earnings grow tax deferred.

Qualified distributions can start at age 59.5.  The required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.  Distributions from an inherited IRA are not subject to penalty even if the distributions occur before the beneficiary reaches age 59.5.






Simple IRA Defined: 


A Savings Incentive Match Plan for Employees Individual Retirement Account.  It is commonly known by the abbreviation "SIMPLE IRA."  This is a type of tax-deferred employer-provided retirement plan in the United States that allows employees to set aside money and invest it in order for it to grow prior to  retirement.  


Terms of the plan: 


  • Employers must contribute annually. A tax deduction is taken for all contributions.

  • Employees can contribute $12,500. Comp >$5k, $13,500 for 2021.

  • $3,000 catch-up contributions allowed

  • For small companies with < 100 workers. All employees at any time during the year are counted

  • Small companies - sole proprietorships & partnerships. This is a great choice if you want to contribute to a retirement plan and employees earn minimum $5000 year in any two years preceding.

  • An employee may choose to contribute, but an employer must contribute annually.

  • An employee can contribute up to $12,500 2018. 

  • Those 50 and over can make a catch-up contribution of $3,000 for the year of 2018.


Plan Guidelines: 


The employer can participate in 1 of 2 ways:


  • He or she can choose to match each employee’s contributions dollar-for-dollar, up to 3% of the employee’s compensation. If the employer has a lousy year, the matching contribution can be reduced to less than 3%, but the contribution must be at least 1% and this cut is only allowed in 2 out of 5 years.

  • Alternatively, an employer can make a 2% contribution of total compensation for each eligible employee up to a cap of $275,000 for the year of 2018. Under this option, employees don’t have to contribute anything but they can, up to the employee contribution limits stated above. 

  • There is a very low cost to set up this retirement plan. 

  • The best thing about a SIMPLE-IRA from the point of view of an employer is its simplicity. No other plans are allowed while maintaining a SIMPLE IRA. An employer who wants to contribute to his employees’ retirement but is discouraged by the cost and paperwork associated with a 401(k) can avoid both. 



Simple IRA Continued:


  • For example some would rather give employees $2,000 than pay an actuary to figure out the annual filing for a defined benefit plan or a conventional 401(k).

  • Contributions to a SIMPLE IRA are not taxed, but distributions from a SIMPLE IRA are.

  • The employer must establish the plan between January 1 and October 1 of the year prior to which the plan is being established. 

  • There are notifications sent out that the employees must get before the election period.  

  • During the first two years after an employee’s SIMPLE IRA is established, assets cannot be transferred or rolled over to another retirement plan. 

  • There is a 25% distribution penalty within the 2 years. 

  • If the employee is age 59.5, there is no distribution penalty even if within the initial 2 years.

  • Distributions prior to 59.5 are subject to 10% penalty. 


Additional Information:: 


  • Withdrawals in retirement are taxed at ordinary income tax rates, earnings grow tax deferred. Contributions are not tax deductible except for sole proprietors.

  • Qualified distributions can start at age 59.5. Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.  

  • Distributions from an inherited IRA are not subject to penalty even if the distributions occur before the beneficiary reaches age 59.5.





SIMPLE 401(k) Plan


Simple 401(k) Plan Defined: 


Savings Incentive Match Plan for Employees established by employers.


Terms of the plan:


  • Similar setup as SIMPLE IRA. Small companies with < 100 workers. Comp >$5k.

  • Can allow loans from the plan. This feature is the MAIN difference between the two plans.  

  • Both employee and employer can borrow against the plan

  • No testing, low administrative costs


Plan Guidelines: 


  • The SIMPLE IRA has a first cousin, the SIMPLE 401(k).

  • The contribution rules in both retirement plans are similar. In both cases, the plans are not subject to the non-discrimination income tests that apply to regular 401(k) plans, and employees are fully vested immediately for all contributions. 

  • Please note that this could be a disadvantage when trying to retain employees. 


Additional Information: 


  • Salary deferral limits of this plan are $12.5k (catch up of $3k for 50 and over) and a traditional 401(k) plan is $18.5k.  

  • Employees who are at least 21 years old can participate and have completed at least one year of service must be allowed to participate in the plan.  

  • A notice must be given at least 60 days before employee is eligible to participate.  

  • The window to create a Simple 401(k) is Jan 1 - Oct 1.  

  • Matching dollar for dollar contribution is up to 3% of compensation (limit $275k in 2018).  

  • Non-elective 2% contribution allowed to all eligible employees.   

  • Qualified distributions can start at age 59.5. Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.  





Solo 401(k) Plan


Solo 401 (k) Plan Defined:


One-participant 401(k) Owner and Spouse.  Designed for small businesses with NO other full-time employees.


Terms of the plan: 


  • Contributions can’t exceed $57,000, $58,000 for 2021.

  • For self-employed, owner-only businesses and partnerships

  • Must file paperwork once assets reach $250,000


Plan Guidelines: 


  • The best thing about a one-participant or Solo 401(k) is that you can maximize contributions if your income is too low to allow you to get the most out of a SEP-IRA plan. 

  • For example, you have to earn a lot to contribute the maximum $53,000 to a SEP IRA.

  • Conversely you can earn less and still contribute more to a 401(k) plan. 

  • Not subject to the complex ERISA rules.  

  • Income contribution is tax deferred. Investments grow unhindered, taxed at withdrawal.


Additional Information:


As both employer and employee, a business owner can contribute both:


  • Type 1. Elective deferrals up to 100% of “earned income” up to the annual contribution limit, which is $19,500, or for those age 50 or older, $24,000.

  • 25% of compensation, which the IRS defines as net earnings from self-employment minus one-half of your self-employment tax and minus the contributions you make to your retirement plan.

  • This plan would be great for a part-time self-employed individual with income from an employer, but also does a little consulting on the side. 

  • The consulting income would be considered self-employed income, thereby rendering the individual’s business eligible for adopting a Solo 401(k).

  • Total contributions cannot exceed $58,000.



Solo 401(k) Plan Continued:  


  • “The Solo 401(k) has few downsides” “The paperwork and costs are very limited. When your savings reach $250,000, you do have to file a Form 5500 annually, but that’s not burdensome.”

  • Limits are between 20-25% of income plus $18,500, the percentage is calculated from the IRS worksheet. If over age 50 the catch up is $6k.  

  • Look for an administrator that doesn’t charge a setup or management fee.  

  • A self-directed Solo 401(k) plan will typically offer a loan feature, allowing participant to borrow the lesser of $50k or 50% of account value. 

  • Also a self-directed solo 401(k) plan contains a built in Roth sub-account which can be contributed to without any income restrictions, brokerage solo 401(k) plans don't nor can be converted. 

  • In-plan roth rollover is treated as taxable income in that year.  

  • Deadline for depository is April 15 unless an extension was filed, If a partnership then March 15.  


“The Solo 401(k) is a very powerful savings vehicle and a great way to maximize retirement savings,” Hogan says.


Qualified distributions can start at age 59.5. Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.  






403(b) Plan (a.k.a. Tax-Sheltered Annuity Plan.) 

403(b) Plan Defined:

This is a retirement plan for specific employees of public schools, tax-exempt organizations and certain ministers. It requires limited investments of either annuities or mutual funds.  


Terms of the plan: 


Different types of contributions are acceptable; 


  • After-tax contributions

  • Non-elective contributions (mandatory employer contributions, ERISA plan then), and elective deferrals (voluntary allowing employer to withhold money from paycheck and be paid directly). 

  • Contribution limit is $19,500, a combination limit is the lesser of $55k or 100% of employee’s most recent yearly salary. Catch up for anyone over age 50 is $6k.  


Plan Guidelines: 


  • Early withdrawal of the 403(b) Plan has 10% penalty.  

  • There is a 20% federal income tax withholding unless the total is transferred to another qualified or individual retirement account.  

  • A surrender charge could be up to 8% if the annuity investment is dissolved.  

  • Possibility exists for the plan to include a designated Roth contribution, these must be included in the plan for at least 5 taxable years and be at least 59.5 years of age. 

  • Often school districts have a list of approved vendors in the district that teachers can use to open a 403(b) and typically don’t give any more information, because they are not legally allowed to.

  • Annuities are sometimes three times as expensive and often underperform traditional investments. 

  • Fidelity and Aspire offer self directed 403(b) plans. 


Qualified distributions can start at age 59.5. Required minimum distribution can be delayed until April 1st of the year following the year in which you turn 70.5.


Roth Conversion

Anyone with a traditional IRA or qualified employer plan such as 401k, 403b, Simple and SEP-IRAs is permitted to convert it to a Roth IRA. No income limits to convert.  However, there are income tax consequences. You will need to pay taxes on any money in the Traditional IRA that hasn’t already been taxed.  


Basically, the entire amount converted is added to the investor’s ordinary income.  This could kick you into a higher tax bracket in the year you do the conversion. On the other hand, if your income happens to be unusually low in a particular year you could take advantage of that situation by making the conversion. 


Similarly, if the government announced tax-rate increases to go into effect in the following year, a conversion in the current year would save on income tax. Timing is important and calculating the tax implications would need to be done with accountant.  However, as long as the funds are transferred trustee to trustee, or, if distributed to the owner, are rolled over within 60 days, there will be no 10% early distribution tax penalty for those under age 59.5.  


If some portion of the contributions to the traditional IRA were made with after-tax money, the IRS uses a proportionate system to determine how much is non-tax money, the IRS uses a proportionate system to determine how much is non-taxable.  Basically a Backdoor Roth where you first make contributions to a Traditional IRA then convert it to a Roth IRA.

*Note: There is an additional charge more for this service. It applies if a Traditional IRA and also Roth IRA are opened together..




In an IRA rollover, the individual may take possession of the funds for a maximum of 60 calendar days prior to depositing the funds moving into another qualified account. An individual can only rollover their IRA once every 12 months.  


An investor has 60 days from the date of the distribution to deposit 100% of the funds into another qualified account or they must pay ordinary income taxes on the distribution and a 10% penalty if the person is under 59.5.  


There is a 20% “ federal income tax withholding”sent to the IRS by your prior plan.  When depositing into the new plan you have to come up with that 20%. The withheld funds won’t be returned until the individual files his tax return next year. 


Rollover from qualified plan to IRA, no current tax but the withdrawal is taxed at the ordinary income tax rate.





An individual may transfer their IRA directly from one custodian to another by simply signing an account transfer form.  The investor never takes possession of the assets in the account and the investor may directly transfer their IRA as often as they like.  




IRA decreases - deductions for losses can no longer be taken.


Retiring employee with investments in the employers 401k are advised to roll those over to a traditional IRA for the benefit of self-directed.