Empower your workforce.

Individual 401(k) Plans

Contributions to the Individual 401(k) or Solo 401(k) are not allowed to be more than the self-employment compensation for the individual. Individual 401(k) plans are also referred to as Solo 401(k) plans. 

2024 Individual 401(k) Limits

• Employee Contribution: $23,000
• Employer Profit Share Contribution: $46,000
• Age 50+ Catch up: $7,500
• 2024 Total Contribution Limit = $69,000

Self-Employment Income Compensation Limits For 2024

• The maximum self-employment income compensation for Individual 401(k) contributions is $345,000 for calendar year 2024

Should you start a SEP IRA?

Business owners can make tax-deductible contributions into a SEP IRA.

The SEP IRA is easy to set up and has far less administrative tasks than a 401(k) or 403(b). Also, there is no Form 5500 filing requirement with the SEP IRA.

If you have W-2 employees, you are required to make contributions for them as well. For example, if the employer contributes 10% of their earnings into a SEP IRA as an employer contribution, the employer must contribute 10% of the salary to the SEP IRA for each W-2 employee.

The employer has the flexibility to change the company contributions on a yearly basis.

Eligibility to Contribute

If you are self-employed or a small business owner, can contribute at any age. 

SEP IRA Vesting Schedule

SEP IRA contributions are 100% vested upon the contribution.

Maximum Annual Contribution

2024:  The maximum contribution in a SEP IRA is up to 25% of your compensation or $69,000, whichever is less. If you have employees, you are required to make employer contributions for them as well. Retirement Plans FAQs regarding SEPs | Internal Revenue Service (irs.gov)

Tax-Deductible Contributions

If you are self-employed and file your federal taxes on form Schedule C, your SEP IRA contribution is 100% tax deductible.

Business owners can also deduct contributions for themselves and employees against their federal taxable income.

Taxation of Earnings and Withdrawals

Tax-deductible contributions and earnings are taxed as ordinary income for distributions after the age of 59 ½ years old.

What type of Investments are allowed in a SEP IRA?

Stocks, bonds, mutual funds, ETF’s, options, treasury bills & notes, CD’s

Withdrawal Penalties

The 10% IRS penalty applies on withdrawals if the distribution is before age 59½ unless an exception below applies. You can read more about this in detail in our Tax Planning section. 

Increase Productivity & Incentives with a 401(k) Plan with Profit Sharing

Profit-sharing plans provide multiple contribution options for the employer to reward long-term employees for their contribution to the business and to give them a share of the profits in the business.  

Profit sharing plans are like 401(k) and Traditional IRAs, the assets grow tax deferred. Participants are also able to take a loan, like a 401(k) or 403(b).

Profit-sharing plans also provide the employer flexibility on the contributions, they can increase or decrease contributions or even skip years.

Eligibility to Contribute

Employee eligibility requirements such as age and length of employment are determined by the 401(k)-plan administrator and company when the plan adoption documents are established.

Note: The Profit-sharing plan adoption document or agreement can be edited to update the employee eligibility requirements.

Maximum Annual Contribution

Profit sharing and match: Up to the lesser of 25% of compensation or $69,000 including employee contributions for 2024.

The total combination of employer and employee (salary deferral) contributions may not exceed $69,000 ($76,500 if age 50 or older) for 2024.

Tax-Deductible Contributions

Profit-sharing plan contributions are tax deductible from federal taxable income.

Taxation of Earnings and Withdrawals

Pre-tax 401(k) contributions and earnings are subject to stare and federal income tax, penalties apply if withdrawn before 59 ½ years old.

What type of Investments are allowed in a Profit-sharing plan?

Profit-sharing plans are typically administered by the employer and there is a set mutual fund lineup like the 401(k) or 403(b) plan.  In some circumstances, employees can invest in their company stock or direct the investments inside the plan.

Withdrawal Penalties

The 10% IRS penalty applies on withdrawals if the distribution is before age 59½ unless an exception below applies. You can read more about this in our “Tax Planning” section or visit the IRS website: Retirement Topics Tax on Early Distributions | Internal Revenue Service (irs.gov)

Exceptions:

• Separation of service in year turning age 55 or older
• Death
• Disability
• Substantially equal periodic payments over life expectancy
• Qualified military reservist
• Up to $5,000 for qualified adoption and/or birth expenses
• Required Withdrawals (RMD):
• Beginning in tax year 2020, the Required Minimum Distributions (RMDs) to start taking qualified distributions or withdrawals changed from age 70½ to age 72 (However, this does not affect participants who turned 70½ on or before 12/31/2019.)

If you are still employed by the employer sponsored retirement plan: 401(k), 403(b), Simple IRA or small-business account then your RMDs may be delayed until the year of retirement.

Keep in mind, some expectations do apply, and we recommend that you meet with your CPA or Tax Advisor.

ERISA Retirement Plan Startup Deadline

• For years after 2020, 401(k) plans may be set up by the tax filing deadlines plus extensions.
• Employee salary deferral contribution(s) must be deducted from participants’ paychecks.
• Employer contributions or profit sharing may be made by the tax filing date plus allowable extensions.
• To learn more about Profit-sharing plans, see the IRS website: Choosing a Retirement Plan: Profit-Sharing Plan | Internal Revenue Service (irs.gov)

403(b) Plans

The 403(b) plan is a special qualified employer sponsored retirement plan which is designed and administered exclusively for the following organizations:

• Non-profit hospitals and non-profit health care organizations
• 501(c)(3) designation charitable organizations and foundations
• Scientific and research organizations which are non-profit
• Churches and other religious organizations

Non-profit Educational institutions

• Private Schools, Colleges, Public Schools Employee contributions into a traditional 403(b) are pre-tax, tax deferred and deducted from gross income on the employees W-2.
• The employee's taxable income is reduced by the total amount of pre-tax 403(b) contributions for the year and recorded as a tax-deduction on the employee’s tax return.
• The pre-tax assets grow tax-deferred inside the traditional 403(b) and are taxed as ordinary income when distributions start. 
• To learn more about the tax considerations 403(b) distributions, see our tax planning section:

Roth 403(b)

• Employee contributions into a Roth 403(b) are on an after-tax basis and not deducted from taxable income.
• The after-tax assets grow potentially tax-free inside the Roth 403(b), you must take a qualified withdrawal or distribution.
• The contribution limits for the Roth are the same for the traditional 403(b).
• To learn more about the tax considerations of 403(b) withdrawals and distributions, please our tax planning section:

Eligibility to Contribute

• Employee eligibility requirements such as age and length of employment are determined by the 403(b)-plan administrator and company when the plan adoption documents are established.
• Note: The 403(b)-plan adoption document or agreement can be edited to make updated to the employee eligibility requirements.
• Maximum Annual Contribution: The 403(b) maximum annual contributions are the same as the 401(k) maximum contribution limits.

Employer Profit sharing and match

Up to the lesser of 25% of compensation or $69,000 including employee contributions for 2024.

Employee (Salary Deferral)

• Up to the lesser of 100% of compensation or for a maximum of $23,000 ($30,500 if age 50 or older) for 2024.
• The total combination of employer and employee (salary deferral) contributions may not exceed $69,000 ($76,500 if age 50 or older) for 2024.

Defined Benefit Plan for Highly Compensated Business Owners

A cash balance plan is a type of Defined Benefit Plan which allows for individuals to make very high tax-deferred contributions to their retirement and usually for self-employed or small business owners over who are looking to make large retirement plan contributions.

Cash balance plans do require a Third-Party Administrator (TPA) and a plan actuary that will administer the plan and make IRS filings.

We recommend that your CPA or tax advisor work directly with the Third-Party Administrator (TPA) to make sure you are following all the IRS codes regarding the cash balance defined benefit plan.

Cash Balance Plans allow for the highest contribution limits in the IRS code, however, there are high costs and administrative requirements which require hiring a Third-Party Administrator (TPA).

• Actuarial calculations provided by a Third-Party Administrator (TPA)
• Requires annual funding based on the Third-Party Administrator (TPA) and actuarial calculations
• IRS filing fees
• Form 5500 with a schedule SB annual filing with IRS

The cash balance plan is entirely funded by the employer and the contribution formula for participants is clearly defined by the plan adoption agreement. 

Cash Balance Plan Caluculations:

Pay credit

The formula that is a percentage of the participants compensation that is credited to the participants cash balance plan each year.

Interest Credit

Fixed or variable formula defined in the plan adoption agreement that is linked to a particular index, such as the one-year treasury bill or 30-year Treasury Note.

The investment risks are sole borne by the employer, the increases and decreases of the investments inside of the cash balance plan do not directly affect the yearly participant benefit amounts.

Distribution Rules:

When a participant becomes eligible to receive their cash balance benefits either in the form of retirement or the early exception rules, the benefits are received in the form of an account balance. The participant can then decide at that time, if they would like to take a life-time annuity based on the account balance or if they would like to receive a lump-sum for the entire amount of the cash balance plan.

One of the main benefits of the cash balance plan is that the participant is eligible to receive the total amount of the account balance and roll in into an Individual IRA or even into an employer retirement plan, this is most common when it comes to cash balance plan distributions.

Defined Benefit Plans for Retirement 

Defined Benefit Plans are designed usually for self-employed or small business owners to give them the ability to make very high tax-deferred contributions.

A personal Defined Benefit Plan works best in our opinion for individuals in their highest earning years and who are age 50 or over. These individuals will need to make annual contributions of $90,000 or more for at least five years.

Defined Benefit Plans are designed for high earning individuals to increase their retirement assets in a very aggressive manor over the age of 50 years old, individuals who participate in these plans are typically highly compensated business owners or key employees in their highest income years. 

Administration

Personal Defined Benefit Plans allow for the highest contribution limits in the IRS code, however, there are high costs and administrative requirements which require hiring a Third-Party Administrator (TPA).

• Actuarial calculations provided by a Third-Party Administrator (TPA)
• Requires annual funding based on the Third-Party Administrator (TPA) and actuarial calculations
• IRS filing fees
• Form 5500 with a schedule SB annual filing with IRS

Defined Benefit Plan | Internal Revenue Service (irs.gov)

Withdrawal Rules from a Personal Defined Benefit Plan?

Penalty-free distributions may be allowed upon retirement or termination of service under certain circumstances.

• Required Minimum Distribution (RMD) withdrawals or distributions must start by age 70½ (if you were born before July 1, 1949) or age 72 (if you were born on or after July 1, 1949).
• You are required to take Required Minimum Distributions even if you are still employed.
• You may receive your benefit payout by rolling assets into an IRA, setting up an annuity, or receiving a lump-sum distribution.
• There is a 50% penalty on the total amount of the distribution if the amount is less than required or is not taken. Distributions before age 59½ are subject to the IRS 10% penalty on the total distribution.

Withdrawal Penalty Exceptions

There are certain circumstances where you can avoid the 10% IRS penalty and take distributions before age 59 ½ years old. Rollover assets into an IRA or new employer plan

• Termination of employment at or after age 55
• Death or disability
• Qualified birth and/or adoption expenses
• Non-reimbursed medical expenses exceeding 7.5% of adjusted gross income
• Withdrawals made in equal installments over the account holder’s life expectancy

What is a SIMPLE IRA?

A SIMPLE IRA is an employer sponsored retirement salary deferral plan without the cost or administrative responsibilities associated with traditional 401(k) or 403(b) plans.

Eligibility to Contribute

Employer and Employees can contribute at any time.

The company must have fewer than 100 employees and each employee must earn a minimum of $5,000 in compensation in the prior year.

Maximum Annual Contribution

Employer: is required to make contributions in the SIMPLE IRA:

3% employee match, dollar-for dollar

2% of compensation for all eligible employees

Employees: Contribute up to 100% of compensation or $16,000 maximum for 2024, however this can not to exceed 100% of employee’s compensation (If you are 50+ years old, the contribution limits increase to $19,500 for 2024)

Tax-Deductible Contributions

Employers’ contributions are tax deductible from federal and state taxable income

Employee can make pre-tax contributions which are deductible from state and federal taxable income

Taxation of Earnings and Withdrawals

SIMPLE IRA contributions and earnings are subject to state and federal income tax, penalties also apply if withdrawn before 59 ½ years old or the two year penalty, see below.

Withdrawal Penalties

There is a 25% IRS additional tax if withdrawn prior to two years from the first deposit into the participant’s account. After that, a 10% additional tax applies before age 59½ unless exception applies.

Types of Investments

Stocks, bonds, mutual funds, ETF’s, options, treasury bills & notes, CD’s

Exceptions:

• Death
• Disability
• Medical expenses in excess of 10% of Adjusted Gross Income (AGI)
• Health insurance premiums if unemployed for 12 consecutive weeks
• Qualifying higher education expenses
• Qualifying first time home purchase ($10,000 lifetime limit)
• Qualified military reservist
• Substantially equal periodic payments made over life expectancy
• Involuntary IRS levies
• Conversion to a Roth IRA
• Up to $5,000 for qualified adoption / birth expenses
•  Required Withdrawals (RMD)
• Beginning in tax year 2020, the Required Minimum Distributions (RMDs) to start taking qualified distributions or withdrawals changed from age 70½ to age 72 (However, this does not affect participants who turned 70½ on or before 12/31/2019.)

If you are still employed by the employer sponsored retirement plan: 401(k), 403(b), Simple IRA or small-business account then your RMDs may be delayed until the year of retirement.

Keep in mind, some expectations do apply, and we recommend that you meet with your CPA or Tax Advisor.

ERISA Retirement Plan Startup Deadline: SIMPLE IRA

• For years after 2020, 401(k) plans may be set up by the tax filing deadlines plus extensions.
• Employee salary deferral contribution(s) must be deducted from participants’ paychecks.
• Contributions must be made within 30-days after end of month
• Employer contributions or profit sharing may be made by the tax filing date plus allowable extensions.