401K, SEP, IRA, SIMPLE and much more - Retirement Plans 101

In this episode, Charles Musgrove and guest Taylor Hodges with Southern Capital discuss the different types of retirement plans. From the simple to the complex, the plans offer a variety of options relating to participation, amount of contributions, access to the cash prior to retirement and many more. The 2019 SECURE Act is also discussed about how it impacts the Retirement Plans. 

Highlights of the types of Retirement Plans:

• Solo 401K - $19,500 / $6,500 catchup + up to 25% of business income for matching
  • Max is $57,000 total contribution + $6,500 for employee catchup
  • Can be used for spouse in business to double contribution amounts
  • Roth option available, solo 401K usually more expensive to setup and maintain
• SEP IRA – 25% of income up to $57,000/yr.
  • Matching contribution for all employees – very important
  • LLC is based on net income / S-Corp is based on salary
  • Usually inexpensive to setup and contributions are made by the employer only
• SIMPLE IRA (Saving Incentive Match Plan for Employees) - $13,500 / $3,000
  • Usually requires employer contribution or match
  • Usually two-year hold on the account for rollover and higher penalty for early withdrawal (25% instead of 10%)
  • Less expensive to setup and maintain than 401K
• 401K - $19,500 / $6,500 for 2020
  • Multiple features and contribution structures
  • Must understand plan testing – cannot discriminate
    • Owners and key employees cannot own 60% of plan assets
      • Owns 5%/ owns 1% and makes $150k +/ officer making $175k +
      • Must be fixed in calendar year
    • Safe Harbor Provision – employer matching for employees and allows employer to avoid plan testing
      • 3 matching options:
        • Non-elective – 3% flat
        • Basic Match – 100% of first 3% / 50% of next 2%
        • Enhanced Match – 100% of first 4%
      • 2020 IRA and Roth IRA contribution limits: $6k / $1K catchup
        • Income phase out for IRA deduction: single $65k-$75k / $196k-$206k MFJ
        • Income phase out for Roth IRA: single $124k-$139k / $196k-$206k MFJ

1. Articles
   • The Hierarchy Of Tax-Preferenced Savings Vehicles For High-Income Earners:
     • https://www.kitces.com/blog/hierarchy-tax-preference-savings-vehicle-roth-high-income/
   • Tax Brackets Resource:
     • https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/
   • 2019 SECURE Act:
     • https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/
   • Don't Die Yet: New U.S. Law Will Muddle Estate Plans:
     • https://www.kitces.com/blog/tax-rate-equilibrium-for-retirement-taxable-income-liquidations-rothconversions/