Three Deadlines, Five Profiles

New Plans: Important Deadlines and Candidate Profiles

As we approach fall, two questions that come up most frequently are ‘What’s the latest date a client can establish a retirement plan?’ and ‘Who should I reach out to before it’s too late?’ Let’s tackle these important issues:

The Deadlines: Plan Setup and Funding

October 1: To establish a new Safe Harbor 401(k) Plan for calendar-year businesses, plan document needs to be signed and participants need to receive a Safe Harbor notice no later than October 1.

December 1: To add a Safe Harbor feature to an existing 401(k) plan or to change Safe Harbor method, plan document needs to be amended and participants need to receive a notice by December 1.

December 31: To establish a qualified retirement plan (401(k), Profit Sharing, Defined Benefit, Cash Balance, etc.) for the calendar year, the plan document must be signed on or before December 31.

The employer-provided contribution may be funded in the following calendar year by the due date of the plan sponsor’s tax filing deadline, including extensions, i.e. in 2015.

The Five Candidates Who Need Your Help

Has No Plan: Whether this client is a one-person shop or has employees, a variety of qualified plan options, ranging from a 401(k) Plan to Profit Sharing to Defined Benefit/Cash Balance or any combination, will improve his or her tax situation by providing a deduction between $17,500 and $100,000+.

The key variable to identify in this situation is the client’s surplus income which can be converted into pre-tax dollars and sheltered within a qualified plan.

Has a Plan, but Needs a Higher Deduction: This client is already funding a plan but needs to increase the deductible contribution by activating a Profit Sharing feature of their 401(k) Plan or adding a layer of a Defined Benefit/Cash Balance Plan. As a rule of thumb, for a 401(k) Profit Sharing you would look for contributions of up to $52,000 per year; for a Defined Benefit/Cash Balance Plan, a good starting point is $70,000 per year or $20,000-$25,000 above the 401(k) Profit Sharing Plan funding level.

The key variable in this situation is the contribution amount in addition to what is currently accomplished.

Has Secondary Source of Income: This client is an employee but also does some independent contracting work, serves as a member of a board of directors, receives royalty payments from books, or has a hobby which creates surplus income. All of this income may be used to fund a retirement plan, such as a defined benefit plan, effectively reducing taxable income from that business entity to $0.

The key variables to identify in this scenario are income level, reliability of cash flow, and a desired savings goal.

Sponsors a SEP or SIMPLE IRA: This client has an IRA-based retirement plan which was established because of administrative easy, low-cost, or, perhaps, because other options were not appropriate at the time or were not evaluated at all. The frequent downfall of these arrangements is two-fold: it either limits contribution potential (higher than necessary income tax) or comes with a high cost of benefits for employees of the business (inefficient distribution of benefits). In other words, a free plan may cost a client thousands of dollars in unnecessary taxes.

Key variables to consider in this situation are contribution objective, current contribution level, and, when applicable, total workforce.

Works as an Independent Contractor: By law, this client is not eligible to participate in the plan sponsored by companies where the contract work is done. As a result, often individuals in this role end up limiting their funding to an IRA or an IRA-based retirement plan, therefore foregoing opportunities to reduce their taxable income and save for retirement in a tax-efficient vehicle.

Key variables to consider in this scenario are surplus income, funding objectives, reliability of income stream and need for flexibility in funding.

Secure a Deduction, Help is Here
We are excited to partner up with you in making a positive difference in your client and prospects’ tax exposure. The profiles identified above are some of the examples of the immediate year-end opportunities.

Your retirement solution consultants are available to assist you and your clients in securing a deduction for the current tax year. We will help with discovery, qualifying opportunities, plan design and timely implementation. Give us a call at (888) 926-0600 or send us an email to