Have you considered a SIMPLE plan for your business?

Many sole proprietors and small business owners agree on the following two issues: they pay too much in taxes and they have difficulty attracting and retaining good employees. One way to address both of these issues is to have your business sponsor a retirement savings plan. If you're self-employed or own a small business and don't currently have a retirement plan in place, consider setting up a SIMPLE plan.

SIMPLEs (Savings Incentive Match Plans for Employees) are available in two forms - SIMPLE IRAs and SIMPLE 401(k)s. SIMPLE plans are generally available only to small businesses that don't maintain any other retirement plan. If your business has more than 100 employees, you won't be eligible for a SIMPLE.

Most businesses will find the IRA version preferable to the 401(k) form of SIMPLE. Here's how SIMPLE IRAs work. Eligible employees (including yourself) can elect to have a portion of their earnings withheld each pay period, limited to $11,500 in annual deferrals ($14,000 for those aged 50 or older). The employees then direct how the deferrals will be invested within their own SIMPLE IRAs. Amounts withheld for the SIMPLE IRA reduce the employee's taxable income and grow tax-deferred.

The costs to set up and administer a SIMPLE IRA are minimal. However, as the employer, you're required to make contributions into your employees' SIMPLE IRAs on their behalf. You have the option of contributing either 2% of the wages of every eligible employee or making matching contributions up to 3% of the wages of those employees who participate in the plan.

Generally, the deadline for businesses to establish a SIMPLE plan for 2012 is October 1, 2012. To find out more about SIMPLE plans, give us a call.

Does this April 2 deadline apply to you?

If you reached age 70½ last year, April 2, 2012, could be an important deadline. That's the last day you can take your required minimum distribution (RMD) for 2011 from your traditional IRAs. If you miss that deadline, the penalty could be a 50% excise tax on the amount you should have withdrawn.

Here's how the rules work. Once you reach age 70½, you must start taking annual distributions from your traditional IRAs. Normally these distributions must occur by December 31 of each year. But a special rule lets you defer the first distribution until April of the year after you reach age 70½. So if you turned 70½ last year, April 2 is the deadline for your 2011 distribution. Be aware that you'll still need to take your 2012 RMD before the end of this year.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70½. But whether you're planning in advance or looking at a distribution on April 2, contact our office for more detailed advice.

The RMD rules don't apply to Roth IRAs. Unless you're still working, this deadline also applies to your other retirement accounts.

Know Your IRA Options

It's not too late to make contributions to an IRA for 2010. You can establish and contribute to a 2010 IRA as late as April 18, 2011. If the IRA is the traditional, tax-deductible kind, you can deduct your contributions on your 2010 tax return. If you're under age 50, the maximum contribution is $5,000; if you were 50 or older by December 31, 2010, you can contribute up to $6,000.

The "charitable IRA rollover" rule was extended through 2011, permitting taxpayers who are 70½ or older to use their IRA to donate up to $100,000 to charity. The donation must be made directly from the IRA to the charity, and it counts as part of the taxpayer's required minimum distribution for the year.

 

If you turned 70½ in 2010, remember that you're now required to take a minimum distribution from your IRA (and, unless you're still working, from other retirement plans also) every year. If you delayed taking your first distribution last year, you have only until April 1, 2011, to take it or you'll be subject to a 50% penalty on the amount you should have taken.

Converting a traditional IRA to a Roth IRA is still an available option for all taxpayers this year. Although a conversion will generate taxable income in the year you do it, later qualifying withdrawals from the Roth will be tax-free. Your conversion opportunities are not limited to just traditional IRAs. You can also convert your 401(k), 403(b), or 457 plan to a Roth.

For details or assistance on IRA matters, contact our office.