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Texas Insurance License #844685
Texas Insurance License #844685
A 403b, also known as a TSA (often referred to as an annuity or a tax sheltered account), represents a code section of the IRS and can be similar to a 401k or IRA, also code sections of the IRS. Under Code Section 403b, educators, hospital workers and certain other government employees can deposit a portion of their salary, pre-tax, into a fixed annuity or index annuity to help future retirement.
Code Section 403b(7) allows these same pre-tax deposits to be invested into mutual funds or a variable annuity. However, direct investments to mutual funds rather than annuities may be preferable, depending on your risk level and overall goals.
Funds deposited into TSA’s help reduce your income before taxes, similar to cafeteria plans. There is a maximum amount which can be deposited annually (per calendar year), subject to the tax law changes. These contributions may be higher in cases where you have been at the same district for more than 15 years and/or are over 50 years of age.
403b’s (TSA’s) allow withdrawals but if funds are withdrawn prior to age 59½ or retirement (whichever is sooner, there are 10% IRS penalties and the withdrawal always becomes taxable income. However, loan provisions are sometimes available.
*Please also consult your tax and legal advisor or call the offices of Jay A. Finn, CPA, LLC.
A 401k is a code section of the IRS that currently allows payroll deferrals up to $19,500 per year with up to $6,500 additional for those contributors at least 50 years old. It also allows a match by the employer of 6% of their salary not to exceed $53,000.00 total per year.
A loan provision at a nominal fee per loan is available for certain events of the participant.
Investment objectives range from safety of principal and inflation protection to maximum long-term growth. The vendor utilized will depend on the size of the program and applicability to the company owner who chooses the vendor.
Such a vehicle carries reporting costs or recordkeeping fees; therefore, usually chosen by mid to large companies to allow such costs ratably to the 401k pool.
A Solo-401k, however, is just available for one-person corporations (C or S). It is also available for a spouse, if a co-owner. The contribution levels are the same as the regular 401k but the employer can match up to 25% of their salary. The cost of a Solo-401k can now be accomplished without a record keeping fee but the client or their tax person must still complete a 5500 or 5500-EZ tax filing whenever the fund exceeds $250,000.
Once another employee is hired besides a spouse, the Solo-401k may no longer accept contributions. The client may then keep the full 401k as a separate account and then transfer to a Simple IRA for current contributions, explained later in this section.
A simplified employee pension (SEP) IRA is a retirement savings plan established by employers—including self-employed people—for the benefit of their employees and themselves. Employers may make tax-deductible contributions on behalf of eligible employees to their (SEP) IRAs.
A simplified employee pension (SEP) IRA is a retirement savings plan established by employers—including self-employed people—for the benefit of their employees and themselves. Employers may make tax-deductible contributions on behalf of eligible employees to their (SEP) IRAs.
SEPs are advantageous because they are easy to set up, have low administrative costs, and allow an employer to determine how much to contribute each year. (SEP) IRAs also have higher annual contribution limits than standard IRAs. Fundamentally, a (SEP) IRA can be considered a traditional IRA with the ability to receive employer contributions. One major benefit of a (SEP) IRA is that employer contributions are vested immediately.
A (SEP) IRA is an employer-sponsored retirement plan that can be set up by sole proprietor, partnership or corporation and annual contribution limits are significantly higher than those for traditional (SEP) IRAs were primarily designed to encourage retirement benefits among businesses that would otherwise not set up employer-sponsored plans. Sole proprietors, partnerships, and corporations can establish SEPs. (SEP) IRAs are tax-deferred accounts and have the same investment options as traditional IRAs.
A Simple IRA is like a Solo 401k but is for sole proprietorships, partnerships or corporations (C or S) with multiple employees and has two (either or) matching criteria. The first is that you can offer all your employees who participate a 3% match. The second is to offer all employees 2% of salary whether they participate or not. It only allows a $13,500 salary deduction and $3,000 for those 50 and over. It has no record keeping requirement and therefore has only managerial and advisor costs like the Solo 401k. For this reason, many small to medium size corporations, sole proprietorships, partnerships and LLC's are adopting the Simple IRA rather than 401k's. Like the 401k, the client or their tax person, must still complete a 5500 or 5500-EZ tax filing whenever the fund exceeds $250,000.
A Simple IRA is like a Solo 401k but is for sole proprietorships, partnerships or corporations (C or S) with multiple employees and has two (either or) matching criteria. The first is that you can offer all your employees who participate a 3% match. The second is to offer all employees 2% of salary whether they participate or not. It only allows a $13,500 salary deduction and $3,000 for those 50 and over. It has no record keeping requirement and therefore has only managerial and advisor costs like the Solo 401k. For this reason, many small to medium size corporations, sole proprietorships, partnerships and LLC's are adopting the Simple IRA rather than 401k's. Like the 401k, the client or their tax person, must still complete a 5500 or 5500-EZ tax filing whenever the fund exceeds $250,000.
A 457 is a code section of the IRS that currently allows salary deferrals (reductions) up to $19,500 per year with up to $6,500 additional for those contributors at least 50 years old. For additional 457 contribution limits see link below. Differing from a 403b, a non-profit or educational institution may choose one 457 program. It has some other real differences over a 403b. Funds cannot be distributed until age 70 or death or unforeseen emergency. Very importantly, if your severed from employment you do not have to wait until 59 ½ to receive your money (without IRS penalty) in lump sum or distributions.
Investment objectives range from safety of principal and inflation protection to maximum long-term growth. The vendor utilized will depend on the size of the program and applicability of the client.
A Traditional IRA also known as a Regular IRA is for individuals who do not have a 401k at work or who are not self-employed or are not a spouse of a worker. A rollover IRA is similar and will be discussed later. In 2016/2017 an individual can take a tax deduction for an IRA from regular income above the line (before Adjusted Gross Income) for $6,500.00 ($7,500.00, if over 50 years old). A spouse of a worker who isn’t working may set-up a spousal IRA for the same limits at any time during the year.
Roth-IRA’s are a new way of saving tax-free or can be a conversion from an IRA once you pay the taxes on an IRA. To get the tax-free savings on the earnings, one must not take the money out before 59 ½ and must also leave the money in the fund for 5 years.
Keogh plans are retirement plans for self-employed people and unincorporated businesses, such as sole proprietorships and partnerships.
The IRS refers to Keogh plans as qualified plans, and they come in two types: defined-benefit plans, which include profit-sharing plans and money purchase plans, and defined-contribution plans, also known as HR(10) plans.
Keogh plans like all of the vehicles mentioned here can invest in the same set of securities as 401ks and IRAs including SEP/IRA’s, including stocks, bonds, certificates of deposit and annuities.
Keogh plans can be set up as either a defined-benefit or defined-contribution plan, although most plans are set as defined contribution.
