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Small company now without a pension or retirement basically because the president hates having to dance to the Government's tune. I can see a compromise in a regular drip portfolio. There are 4 employees.

I am looking for suggestions on the best way to set this up. I am also open to other solutions.
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Have you looked into a SEP-IRA? I don't know all the details, but if you choose an IRS prototype I believe that's all the dancing you have to do.

Good luck,
e
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I do not know what a SEP-IRA is. Can you advise me on a definition or information source?

Does a SEP-IRA still have government regs with penalties if you put away too much?

aczinor
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Me Again. I have found my definition with a simple serch here at the Fools site.(I love this place!)

Thank you for the suggestion.

Aczinor
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Small company now without a pension or retirement basically because the president hates having to dance to the Government's tune. I can see a compromise in a regular drip portfolio. There are 4 employees.

I am looking for suggestions on the best way to set this up. I am also open to other solutions.


As has been pointed out, a SEP requires just a simple box step; no dips or spins required. You might want to bone up on the benefits to the employer in Publication 560. The major benefit for the employer in having a sanctioned plan is the effect on his taxes, not to mention employee satisfaction.

You should also take a look at SIMPLEs in Pub 560.

TMF ExRO
Phil Marti
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The major benefit for the employer in having a sanctioned plan is the effect on his taxes, not to mention employee satisfaction.

By "sanctioned" do you mean the same thing as "qualified"?

Curious,
e

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By "sanctioned" do you mean the same thing as "qualified"?

That's not really what I intended, but that's the gist of it. "Qualified" is a term of art in retirement tax law, so I don't toss it around.

TMF ExRO
Phil Marti
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The President would still prefer not to work into an IRA. He does not want to just put it in a paycheck as it may never get into an investment. He likes the idea of a regular mutual or dip/drip of the employees choosing. He is willing to pay the taxes.

So should I move to the Drip board? I need to suggest to him how to set it up that both the company and the employee may contribute.
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So should I move to the Drip board? I need to suggest to him how to set it up that both the company and the employee may contribute.

If you're interested in DRiPs, that's probably the best place.

Keep in mind that any contributions he makes on behalf of employees are additional compensation, subject to employment and income taxes. When this starts happening, carefully check your paystubs to make sure everything's being done correctly.

TMF ExRO
Phil Marti
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Aczinor writes:

<<The President would still prefer not to work into an IRA. He does not want to just put it in a paycheck as it may never get into an investment. He likes the idea of a regular mutual or dip/drip of the employees choosing. He is willing to pay the taxes.

So should I move to the Drip board? I need to suggest to him how to set it up that both the company and the employee may contribute.>>


If he is unwilling to establish a SEP for his employees but is willing to establish a fully taxable investment account (be that a DRiP or otherwise), then whatever he deposits in those accounts on behalf of the employees will be taxable to the employees as compensation. Otherwise, he won't be able to deduct the contribution as a business expense. And if he doesn't deduct it, then he's making a personal gift to each employee.

If he pays the taxes due on either the contribution or on the investment earnings, that payment will also be treated as taxable to the employees or as a personal gift depending on how he elects to handle the expense.

IMHO it would be much simpler for him to establish a SEP or to simply forget about the concept altogether.

Regards..Pixy
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Pixy - Now we are back to square one. That is WHY the company has no pension or retirement.
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Aczinor writes:

<<Pixy - Now we are back to square one. That is WHY the company has no pension or retirement. >>

Precisely. He can't have his cake and eat it, too, so he either wants a plan or he doesn't. It sounds to me as if he really doesn't.

Regards..Pixy
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Another possible hurdle: Under state law, an employee may be entitled to be paid in cash. These laws were enacted by many states in the days when some employers paid in script that could only be used at the Company store. If such a law applies to you, then each employee will have to agree (probably in writing) to accept the mutual fund or drip investment in lieu of cash.

Good luck. -- Suzanne
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<<Pixy - Now we are back to square one. That is WHY the company has no pension or retirement. >>

Precisely. He can't have his cake and eat it, too, so he either wants a plan or he doesn't. It sounds to me as if he really
doesn't.

Regards..Pixy

Hi Pixy

He can have his cake and eat it. I will be there to help him bake and frost it.

The President has been very generous in the years I have worked here. The Dude has offered to buy but he has asked to pick the Bar. Even at a 28% tax rate, I profit 72% more than I am currently putting away and there are people here who are living above their current means who will have nothing. They would not have a 401K either unless someone else paid for it. I would prefer to not have to pay the taxes just yet, if I don't have to.

Now, one problem he has with the Government plans is they are not fair to the lower paid employees. In a good year he can only contribute equally to all employess by the 25% of the lowest paid employee. After that the higher paid people can get more but the lowest paid cannot.

I will type slowly for emphasis. He has Requested A Plan That Does Not LIMIT The Amount He Can Contribute AND Does Not Become Available Until We Leave Employment With The Company. If you have any recommendations toward this solution I am open to hearing them.

Aczinor

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Aczinor writes:

<<He has Requested A Plan That Does Not LIMIT The Amount He Can Contribute AND Does Not Become Available Until We Leave Employment With The Company. >>

There is no such animal in the qualified retirement plan world. However, I'm sure he can find a provider of a nonqualified plan that will write what he wants. He can discriminate all he wants in such a plan. The problem, though, is those plans aren't "owned" by the employee until they depart, they are taxable when taken (but they may be taken at any time regardless of age), and they remain subject to a creditor's claims. If that interests him, then he should be talking to the Vanguards, Fidelitys, Schwabs, etc., of the world to see who can develop one for him.

Regards..Pixy
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