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Welcome
7/08© 2006–2008 Ameriprise Financial, Inc. All rights reserved.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.Ameriprise financial advisors do not offer tax or legal advice. Always consult with your tax and legal advisors concerning your own situation.
[Greg Younger, CRPC636.534.2092
If You Work for Yourself…an Individual(k) Plan Can Work for You
Individual(k)
• An introduction to Individual(k) plans
• Is an Individual(k) plan right for me?
• Establishing and maintaining an Individual(k) plan
An Introduction to an Individual(k) Plan
What is an Individual(k) plan?
• A 401(k)-based plan
• Designed exclusively for owner-only businesses
• Created by pension reform legislation that went into effect in 2002
Introduction
What makes Individual(k) plans so appealing?
>Greater funding opportunity
>Funding flexibility
>Access to loans
>Multiple distribution options
>Low cost/low maintenance
>Opportunity to designate some contributions as Roth 401(k) contributions
Introduction
How do Individual(k) plans work?
• Two funding components:
>Discretionary employer contribution (from 0% up to 25% of eligible compensation1)
>“Salary deferral” contribution (from $0 up to $15,500 for 2008)
• Aggregate limit: 100% of compensation up to $46,000 for 2008
• Additional “catch-up” contributions up to $5,000 for individuals age 50 or older
Introduction
1What is considered compensation varies for self-employed individuals, partnerships, and corporations. Consult your tax advisor.
Example
• Tom is a 45-year-old, incorporated small-business owner who anticipates paying himself $100,000 in wages during 2008
• An Individual(k) plan would afford Tom the following funding flexibility
Introduction
Minimum Maximum
Salary deferral contribution $0 $15,500
Discretionary employer contribution $0 $25,000
Total contribution $0 $40,500
This example is provided for illustrative purposes only.
Comparison for unincorporated businessesIntroduction
This example is provided for illustrative purposes only.*Assumes employer matching contribution of 3% of eligible compensation.
Business owner
net profit(2008)
SIMPLE IRA
maximum*
SIMPLE IRA w/
catch-up maximum*
SEP, profit sharing or
money purchase pension
Individual(k) maximum
Individual(k) w/ catch-up maximum
$10,000 $9,235 $9,235 $1,859 $9,294 $9,294
$50,000 $11,885 $14,385 $9,294 $24,794 $29,794
$100,000 $13,271 $15,771 $18,587 $34,087 $39,087
$150,000 $14,656 $17,156 $28,333 $43,833 $48,833
$200,000 $16,041 $18,541 $38,200 $46,000 $51,000
Comparison for incorporated businessesIntroduction
Business owner’s
W-2 wages(2008)
SIMPLE IRA
maximum*
SIMPLE IRA w/ catch-up maximum*
SEP, profit sharing or
money purchase maximum
Individuall(k) maximum
Individual(k) w/ catch-up maximum
$10,000 $9,535 $9,535 $2,500 $10,000 $10,000
$50,000 $12,000 $14,500 $12,500 $28,000 $33,000
$100,000 $13,500 $16,000 $25,000 $40,500 $45,500
$150,000 $15,000 $17,500 $37,500 $46,000 $51,000
$200,000 $16,500 $19,000 $ 46,000 $46,000 $51,000
This example is provided for illustrative purposes only.*Assumes employer matching contribution of 3% of eligible compensation.
Roth 401(k) designated deferrals
• Designated Roth 401(k) deferrals are made with after-tax dollars (no tax deduction today)
• Future distributions of earnings are tax-free if:
>Distribution is made after age 59½ or due to death or disability, and
>Participant has held Roth 401(k) account for at least five years
Introduction
Roth 401(k) designated deferrals requirements
• Plan must allow for designated Roth 401(k) deferrals
• Maximum deferral amount does not change
>All or some of the $15,500 (for 2008) maximum deferral may be designated as Roth 401(k) deferrals
• No income limits restrict the designation of contributions as Roth 401(k) deferrals
• Catch-up contributions are also eligible for Roth 401(k) deferrals
Introduction
Is an Individual(k) plan right for me?
An Individual(k) is available for all types of businesses
• Sole proprietorships
• Partnerships
• Corporations
Is an Individual(k) plan right for me?
Types of businesses
Types of businesses
• These plans may be right if you fit into one of the following categories:
>Category #1: Your business employs only business owners (including spouses)
>Category #2: Your business employs only common-law employees that can be excluded from plan participation under the federal laws governing plan coverage requirements
Is an Individual(k) plan right for me?
Examples
• Family farmers & ranchers
• Board members
• Freelancers
• Consultants
• Independent contractors
• Store owners
• Sales representatives with 1099-MISC
• Doctors/attorneys
• Caterers
• Resort owners
• Home businesses
• Brokers
• Tax advisors/financial planners
• Insurance agents
• Real estate agent
Is an Individual(k) plan right for me?
Exclusions from plan coverage
• The following are some types of common-law employees that may generally be excluded from plan coverage:
>Employees under age 21
>Those who work < 1000 hrs/yr
>Nonresident aliens
>Union employees covered under a collective bargaining agreement
Is an Individual(k) plan right for me?
Example #1
• Business type: Sole proprietorship, under age 50
• 2008 projected compensation: $80,000
• Current arrangement: SEP-IRA
Scenario 2008 maximum contribution
Current arrangement $14,870
Adopt Individual(k) $30,370
Result 104% increase
This example is provided for illustrative purposes only.
Is an Individual(k) plan right for me?
Example #2
• Business type: Partnership, under age 50
• Partner’s projected 2008 compensation: $100,000/partner
• Current arrangement: Profit sharing
This example is provided for illustrative purposes only.
Scenario 2008 maximum contribution
Current arrangement $18,587/partner
Adopt Individual(k) $34,087/partner
Result 83% increase
Is an Individual(k) plan right for me?
Example #3
• Business type: Sole proprietorship, over age 50
• Projected 2008 compensation: $20,000
• Current arrangement: None
This example is provided for illustrative purposes only.
Scenario 2008 maximum contribution
Adopt SEP-IRA $3,717
Adopt Profit Sharing $3,717
Adopt SIMPLE IRA $13,554
Adopt Individual(k) $18,587
Is an Individual(k) plan right for me?
What is asset consolidation?
• Consolidating some or all of your existing retirement savings under one umbrella, such as an Individual(k) plan
• Law changes have greatly enhanced the opportunities for asset consolidation
Is an Individual(k) plan right for me?
Advantages of consolidation
• Reduce administrative fees
• Gain access to assets via Individual(k) plan loans
• Manage one unified retirement savings portfolio
• Eliminate statement clutter
Is an Individual(k) plan right for me?
Types of retirement savings that can be consolidated…
…under an Individual(k) plan:
• Profit sharing and money purchase
• Defined benefit
• 401(k)
• 403(b) (i.e., tax-sheltered account or annuity)
• Traditional IRA
• Rollover IRA
• SEP IRA
• SIMPLE IRA
Is an Individual(k) plan right for me?
Three questions
• Would I like to have the option of contributing more than 25% of my compensation for a given year if circumstances permit?
Is an Individual(k) plan right for me?
Three questions
• Would I like knowing that I could access my retirement savings – if circumstances required – in the form of a participant loan?
Is an Individual(k) plan right for me?
Three questions
• Would I like to have the option of designating some or all of my deferral contributions as Roth 401(k) deferrals?
Is an Individual(k) plan right for me?
Summary
• Higher funding limits – up to $46,000 (2008)
>Employer discretionary contribution of up to 25% of eligible compensation
>Plus up to $15,500 in employee contributions (2008)
• Funding flexibility
• Access to loans
• Multiple distribution options
• Cost-effective administration
• Asset consolidation opportunities
• Opportunity to make Roth 401(k) contributions
• Catch-up contributions
Is an Individual(k) plan right for me?
Let’s Get Started.
© 2006–2008 Ameriprise Financial, Inc. All rights reserved.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.Ameriprise financial advisors do not offer tax or legal advice. Always consult with your tax and legal advisors concerning your own situation.