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CPA Retirement Plans

Aug 17, 2007
Retirement plans are one of the most valuable benefits that an employer can offer to attract and retain highly qualified employees. CPAs offer a wide variety of retirement plans that are designed specially to suit the needs of businesses and individuals. These retirement plans take a number of factors into consideration. Retirement planning is considered to be a smart move that is also proactive. It needs to be done irrespective of the age of a person or even business.

Basically, there are three types of retirement plans that CPAs offer:

. Corporate Retirement Plans
. Individual Retirement Accounts (IRAs)
. Self-employed Retirement Plans

There are four types of Corporate Retirement Plans:

. Simple IRA Plans- It is like an investing tool that can be an individual retirement annuity or individual retirement account. IRAs are of several types like a traditional IRA, Simple Ira, Roth IRAs or SEP IRAs. Simple IRAs are retirement plans that are established by employers. Even individual contributions by the participants are made to Simple and SEP IRAs. The maximum salary reduction contribution in simple IRA plans allowed for any employee is 10,000 dollars. The employees who are more than 50 years old can make a catch up contribution of 2000 dollars.

. Simplified Employee Pension (SEP) - Simplified Employee Pension is a type of plan that can be established by employers and it can also include self-employed individuals. This plan can provide an important source of income at retirement, by allowing the employers to set aside some money in retirement accounts for themselves and employees. Simplified Employee Pension has a maximum contribution of 42,000 dollars or 25% from all participant compensation.

. Qualified Plans- Qualified plans are established by employers for the provision of retirement benefits for their employees and the beneficiaries. This plan is not like Simple and SEP IRAs, as it is not IRA based or it is not even subject to the same rules that concern distributions and contributions. This plan is in accordance with the requirements of the Internal Revenue Code and due to which, it becomes eligible to receive certain tax benefits. It should be for the exclusive benefit of the beneficiaries and employees. It can be a defined-benefit plan or even a defined-contribution plan. It allows the employers to deduct tax for contribution to the plan. This money purchase and profit sharing plan is based on the current compensation and the maximum contribution that can be made is 42,000 dollars.

. Individual 401 (K) Plan- It is like a salary deferral plan, with contribution from the employees as well as the employer. Individual 401 (K) retirement plan is only applicable for a sole owner of a company and the spouse.

Individual retirement accounts:

Roth IRA and traditional IRA are two types of Individual Retirement Accounts. Roth IRA is not tax deductible and the income that comes is not taxable too, when withdrawn post-retirement. It is a better option when an individual is young or if he believes that he will be in a higher tax bracket after retirement. It is preferable to choose traditional IRA, if the person is in a high tax bracket in the years of contribution.

Self-employed Retirement Plans:

This plan has the same rules as the Corporate Retirement Plans, but there is just one major difference. For partnerships or for those who are self-employed and have an SEP or Qualified Plan, the deductible contribution of the owner is on 1040 and not on Schedule C or partnership Tax Return.
About the Author
Former IRS Agent offers California Estate Planning. CPA Firm Murrary and Young offers expert accounting consultation to those in and around the California Area. Visit http://www.april15.com
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