Personal finance

**jIM_Ohio** · 11-23-2010, 06:30 PM

Most of my questions would be taxes and asset allocation based. How much do you know about each?

With 9k of gross income/mo, are you still eligible for 401k?

Do you have an asset allocation plan for the 4k/mo you save? Not all of that can be tax deferred.
What is the employment status of your situation?

One job where you are 16% owner- more info on this.
Another job where you work X hours per week? more info on this.

If you have 2 employers and have control of one of them (as an owner) focus some efforts on the retirement plans of the company you own. Max the other plan too (the plan at the other employer).

**psuicyde king** · 11-23-2010, 06:41 PM

Originally posted by jIM_Ohio View Post

Most of my questions would be taxes and asset allocation based. How much do you know about each?

With 9k of gross income/mo, are you still eligible for 401k?

Its actually net income. Not sure about eligibility, but my company doesn't offer one. Can I still contribute to a 401k in another way?

Do you have an asset allocation plan for the 4k/mo you save? Not all of that can be tax deferred.

Just savings account right now, considering moving it to medium-risk stocks

What is the employment status of your situation?

? I don't understand the question

One job where you are 16% owner- more info on this.

I am a salaried CEO, we have a loan out from business partners that needs to be repaid, and is projected to be paid next year, prior to the profit mentioned earlier. I have no financial risk in the investment.

Another job where you work X hours per week? more info on this.

none - just the one job

If you have 2 employers and have control of one of them (as an owner) focus some efforts on the retirement plans of the company you own. Max the other plan too (the plan at the other employer).

We are a young company, less than a year old. I think it is too early to offer 401k to employees (including to me). But I'm def not an expert, and am open to suggestions.

Thanks so much for your response.

**jIM_Ohio** · 11-24-2010, 04:37 AM

Originally posted by psuicyde king View Post

Its actually net income. Not sure about eligibility, but my company doesn't offer one. Can I still contribute to a 401k in another way?

Just savings account right now, considering moving it to medium-risk stocks

? I don't understand the question

I am a salaried CEO, we have a loan out from business partners that needs to be repaid, and is projected to be paid next year, prior to the profit mentioned earlier. I have no financial risk in the investment.

none - just the one job

We are a young company, less than a year old. I think it is too early to offer 401k to employees (including to me). But I'm def not an expert, and am open to suggestions.

Thanks so much for your response.

Why can your company not offer a 401k to employees? That would be step 1. OP made it sound like you had 2 jobs, this post shows that assumption by me was wrong. You need to clarify how this company is set up (S Corp, LLC, other) and how the income is distrubuted (as salary or as profit) and how taxes are handled (does the company file a tax return, or is this transferred to tax return of each individual owner)?

**psuicyde king** · 11-24-2010, 05:04 AM

Originally posted by jIM_Ohio View Post

Why can your company not offer a 401k to employees? That would be step 1. OP made it sound like you had 2 jobs, this post shows that assumption by me was wrong. You need to clarify how this company is set up (S Corp, LLC, other) and how the income is distrubuted (as salary or as profit) and how taxes are handled (does the company file a tax return, or is this transferred to tax return of each individual owner)?

Admittedly, I'm not an experienced business owner. Less than one year experience

. I am making an assumption that the 401k is an expense to the company, and if recruitment is currently adequate there is no need to offer a 401k at this time. If my read is incorrect, please provide perspective, I am very wiling to learn.

This company is a c Corp. Most compensation is salary, plus a 30% incentive for performance. Directors and up (1 director and no vp right now) are eligible for a profit sharing program worth up to 100% of their salary (10% of company net profit is reserved for the profit sharing program). We do also offer dental insurance and medical insurance through an hsa. The companu pays 80% of premiums for both.

**jIM_Ohio** · 11-24-2010, 05:43 AM

Originally posted by psuicyde king View Post

Admittedly, I'm not an experienced business owner. Less than one year experience

. I am making an assumption that the 401k is an expense to the company, and if recruitment is currently adequate there is no need to offer a 401k at this time. If my read is incorrect, please provide perspective, I am very wiling to learn.

This company is a c Corp. Most compensation is salary, plus a 30% incentive for performance. Directors and up (1 director and no vp right now) are eligible for a profit sharing program worth up to 100% of their salary (10% of company net profit is reserved for the profit sharing program). We do also offer dental insurance and medical insurance through an hsa. The companu pays 80% of premiums for both.

401k also helps those working there now- if you add employees, there are rules to follow, but you need to look into this if you have any influence into such a decision.

The IRAs you can use depend on what retirement plans your employer provides, so it is worth some time reading on this subject.

Differences Between C Corporations and S Corporations

that is a good read, it helped me find some info on retirement plans for C corps

Federal Taxation
A C Corporation is taxed as a separate entity and must report profits and losses on a corporate tax return. The C Corp pays corporate taxes on its profits while the shareholders are not taxed on the corporation�s profits. C Corp shareholders report and pay income taxes only on what they are paid by the corporation. Now when the corporation chooses to pass along any of its after-tax profits to shareholders in the form of dividends, the shareholders must report those dividends as income on their personal tax returns even though the corporation has already paid corporate taxes. This is commonly referred to as �double taxation�, something that is avoided with an S Corporation (a pass-through tax entity).
While an S Corporation with more than one shareholder does file an informational K-1 tax return, the corporation itself does not pay any income taxes. Instead, the individual shareholders (owners) must include their share of the corporation�s profits on their personal tax returns, paying tax at their individual tax rate.

and then further down this

Employee Benefits
Both C Corporations and S Corporations are allowed to provide employee benefits that are deductible by the corporation and tax free to the employees. Retirement Plans, Medical Plans, Life Insurance, Childcare, and Education Plans are some of the types of benefits frequently offered. While the rules vary for the plans, the tax-free status of some is not nearly as generous for owners with more than 2% of an S Corporation�s stock.

I read that so I could know for sure- you can set up a 401k for company regardless of how many employees work there.

On IRS site I searched for small business retirement plans

Retirement Plan Life Cycle - Stage One - Choosing
Choosing a Retirement Plan: Retirement Plan Options

(check both links, second is very specific)

With a 401(k) plan, employees can choose to defer some of their salary. So instead of receiving that amount in their paycheck, the employee defers, or delays, getting that money. In this case, their deferred money is going into a 401(k) plan sponsored by their employer (that would be you). This deferred money generally does not get taxed by the federal government or by most state governments until it is distributed.

If you establish a 401(k) plan, you:

Can have other retirement plans.
Can be a business of any size.
Need to annually file a Form 5500.
You can make a 401(k) plan as simple or as complex as you want to. A pre-approved 401(k) plan might be just the thing here if you want to cut down on administrative headaches and expenses.

Information List:

Pros and Cons:

Greater flexibility in contributions.
Employees may contribute more to this plan than under IRA plans.
Good plan if cash flow is an issue.
Optional participant loans and hardship withdrawals add flexibility for employees.
Administrative costs may be higher than under more basic arrangements.
Need to test that benefits do not discriminate in favor of the highly compensated employees. This testing can be complicated.
Additional withdrawal and loan flexibility adds administrative burden for the employer.
Who Contributes: Employee salary deferrals and/or Employer contributions. Employees are always 100% vested in their salary deferrals. Employer contributions may be vested on a graduated vesting schedule.

Contribution Limits:
Employee - $16,500 in 2010 and 2011. If the employee is aged 50 and over, an additional �catch-up� contribution is allowed. The additional contribution amount is $5,500 in 2010 and 2011.

Employer/Employee � The lesser of 25% of compensation or $49,000 in 2010 and 2011.

Filing Requirements: Annual filing of Form 5500 is required.

Participant Loans: Permitted.

In-Service Withdrawals: Yes, but subject to possible 10% additional tax if under age 59-1/2.

Additional Resource:

**MonkeyMama** · 11-24-2010, 06:22 AM

In general, the cost of a retirement plan would be worth the cost savings to you. You would be able to divert some of your compensation to a tax-deferred status.

401ks are not the only way to go. They can be much more to administer, where as a profit sharing plan (employer contributions only), would be much less costly and simpler to implement. Depending on how many employees you have and what kind, etc., the 401k probably makes more sense to cut your own taxes. But, it would be worth consulting with a retirement plan administrator and evaluating your options. A consultation is generally free for these type services.

Smaller employers generally do not offer retirement plans, to attract employees, or out of the kindness of their hearts. They generally offer them so that the principals of the company can max out their retirement plans (put $49k per year away, tax free). Which would be in your best interest to do. IT doesn't matter how young the company is, but I understand your reluctance if you are not sure of the life span of the company. All the more to discuss with an administrator.

**nick__45** · 11-24-2010, 06:35 AM

If you're bringing home 9k a month and only have expense of $330/month, why are you not out enjoying yourself. This forum is for us folks that only manage to bring $5k or less home a month while having $3k or more in expense and trying to save the remaining $2k for the raining days.

**Joan.of.the.Arch** · 11-24-2010, 07:08 AM

Pardon me, but I think this forum is for anyone interested in saving money.

**bjl584** · 11-24-2010, 08:16 AM

I take issue with that too. This forum is for everyone. It doesn't matter how much you earn, how much you have saved, or how much debt you have. This forum is a place for people to sharpen their financial skills and improve their understanding of saving, investing, and budgeting.

**disneysteve** · 11-24-2010, 08:59 AM

Originally posted by nick__45 View Post

This forum is for us folks that only manage to bring $5k or less home a month

There are a lot of people here who earn more than 5K/month, sometimes a lot more than that. This forum is for everyone looking for ways to be more responsible with their money. It doesn't matter how much you earn. It matters what you do with what you earn.

**jpg7n16** · 11-24-2010, 09:44 AM

Originally posted by psuicyde king View Post

Hi all, i've had some changes recently, and i could use your help guiding some of my financial decisions.

My questions are:

Debt:

It's not just about the amount of debt you have, but also the interest rate you are being charged on that debt. What interest rate is out on your debt? That can help you decide the priority of debt elimination. If 4% or less, it's a lower priority than if it's 6%+.

Cash Assets:
* Savings: 40k
* Stocks / Mutual Funds: 55k (up ~50% ytd)

This may be too much in cash, unless you need that cash for the running of your business. But if your business has it's own cash account (which I would recommend you do) then this is a little too much cash for you. I see your expenses are 3300 + 1700 mortgage for 5000/month. 6 months expenses would be $30k, so you can put the extra 10k into a short-mid term bond fund. Keeps liquidity, slightly more risk, and slightly higher return.

Retirement:
* Roth IRA: 19k
* 401(k): 55k
* I am not contributing. From my understanding, I am not eligible to contribute to Roth Ira, and my company does not yet offer 401k (should I offer it?)

The 401k isn't the only option available for businesses for retirement. It is one option.

Check out the free info at IRS.gov : Retirement Plans for Small Businesses

Or find a CFP in your area who specializes in retirement options who can review your business retirement options with you.

**MonkeyMama** · 11-24-2010, 10:04 AM

Originally posted by nick__45 View Post

If you're bringing home 9k a month and only have expense of $330/month, why are you not out enjoying yourself. This forum is for us folks that only manage to bring $5k or less home a month while having $3k or more in expense and trying to save the remaining $2k for the raining days.

Hmmm, I didn't get that memo!

Personal finance