DOLLARS AND $ENSE by Richard Vera II, MBA, CPA, DABFA Of CPA & Financial Services, L.L.C. Atlantic Highlands, New Jersey CPA@cpafs.com   contact Richard Vera

View Archive   Atlantic Highlands Herald published  September 13, 2001

RETIREMENT PLANS THAT BALANCE FINANCIAL NEEDS

More and more, business owners are being asked to address the retirement needs of their employees. Employees may not know how to invest for retirement or how best to achieve their retirement goals. Implementing a retirement plan can help establish a means of reaching employees' retirement goals and can give employees the means and the leadership to encourage investing for retirement.

Moreover, most retirement plans also offer tax-deferred advantages that can dramatically increase the earning power of the money in the plan. Businesses can benefit from implementing a retirement plan through the reduction of taxable income by the amount of the contribution. These tax savings can be quite substantial and can reduce the actual out-of-pocket costs incurred for funding the retirement plan.

Intangible benefits gained from implementing a retirement plan consist of increased employee morale, company loyalty, and a strong recruiting incentive. Employees may be more motivated and productive because they feel that you care about their welfare. Overall, the best plans seek to balance the financial needs and resources of both employees and the business.

Retirement plans that allow the employer to designate the amount of contribution are highly popular. One example is the simplified employee IRA plan (SEP). The SEP can generally be described as an employer-sponsored retirement plan in which employee IRAs are used as the funding vehicles.

The main advantages of the SEP are as follows:

1. Contributions are discretionary up to 13.04 percent of earned income or 15 percent of W-2 wages, up to a maximum of $22,500 for employees.
2. Ease of adoption.
3. Lack of governmental reporting requirements.
4. Low or no administration cost.

SEP's also have disadvantages. For instance, seasonal employees earning as little as $400 (for 1996) may have to be included in the plan. In addition, all contributions, once invested, are 100 percent owned by the employee, providing no retention incentive.

SEP's are best suited to small companies with a non-seasonal work force and wide swings in yearly profits. In general, a SEP is an alternative for employers unable or unwilling to pay the high administrative service fees required of a qualified plan.

Rich Vera, CPA practices at CPA & Financial Services, LLC, located at 971 Leonardville Road, Atlantic Highlands. A full service firm offering Income Tax Preparation, IRS Representation, QuickBooks Support, Notary Public Services, Investment and Brokerage Services, Mortgages, and Prepaid Accounting Services. You can contact him at: Ph: (732) 291-8546 ¨ Fax: (732) 872-6447 ¨ E-mail: CPA@cpafs.com ¨ Visit: http://www.cpafs.com/

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