A flexible plan, with the alternative to deduct and contribute to the plan 0% to 25% from your business related net income or total eligible payroll. This allows you to adjust the plan contribution depending on the financial status of your business.
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How to establish your Retirement Plan
When you establish a Retirement plan, you must take certain basic actions. One of your first decisions will be whether to set up the plan yourself or to consult a professional to help with establishing and maintaining the plan.
There are two plan formulas, and each of them has unique features that will adapt to your budget situation:
Profit Sharing Plan
Money Purchase Plan
A fixed contribution based on a percentage chosen when designing the plan. You can choose any percentage up to a 25% of your business related net income or total eligible payroll. The contribution must be made every year.
In addition, there are four initial steps for setting up a retirement plan:
- Adopt a written plan document,
- Arrange a trust fund for the plan’s assets,
- Develop a recordkeeping system, and
- Provide plan information to participants.
KEOGH Plans
A Keogh Plan is a retirement plan for self-employed professionals. It allows the professional to deduct up to 25% from business related net income (after the pension contribution).
Benefits
- The contribution is deductible as an expense on your individual tax return.
- Gains or losses attributable to plan investments accumulate tax-free.
- Funds are protected against claims.
- Since it allows transfers from and to other qualified plans, rollovers are tax free, including to an IRA account.
- At retirement age, the balance in your account could receive favorable tax treatment.
- The plan can always be modified to meet your needs and goals.
- You can contribute to an IRA account while maximizing the contribution to your Keogh.
- In case of death, the benefits go directly to the designated beneficiaries.
Corporate Plans
Are similar to Keogh Plans, with the exception that contributions are calculated from total eligible payroll.
Benefits
- The contribution is deducted as an expense on the corporate tax return.
- Gains or losses attributable to plan investments accumulate tax-free.
- Funds are protected against claims.
- Since it allows transfers from and to other qualified plans, rollovers are tax free, including to an IRA account.
- At retirement age, the balance in the account could receive favorable tax treatment.
- The plan can always be changed to meet corporate needs and goals.
- In case of death, the benefits go directly to the designated beneficiaries
Profit sharing plan with 1081.01 provisions cash or deferred contribution arrangement
A qualified retirement plan commonly known as a 401(k) Plan, that allows the employee to defer from his/her salary up to $15,000 from salary and have it deposited into the plan thus reducing his/her salary for tax purposes.
401(k) plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees.
Employers start a 401(k) plan for a host of reasons:
- 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 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.
At BCG we have the experienced personnel to help you with the process of setting up your plan, and maintain its qualified status. Bilingual professionals, facilitating communication with your personnel, perform all the work locally. The staff is always available to plan sponsors and their advisors, to answer inquiries that may arise relative to the plan and related issues. Committed to a communication process to assure continued regulatory compliance and satisfaction of the plan, we will keep you and your advisors abreast of legislative and plan design developments that may have an impact on the plan and how to best develop strategies to address new development.