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| Steven King, CFP 171 Marine Parade, Suite #1 Wheat Ridge, Colorado 95062 831-426-4600 Toll Free: 877-420-8804 fax: 831-426-4646 sking@1stallied.com |
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| iiRetirement Plans for Business: Individual K Plans |
Retirement Plans
Financial Planning
Investments
Financial Planning
Investments
| . |
Is an "Individual K" Plan right for your business?
_________________________________________________________
This document is an introduction only and is not intended as advice. A detailed analysis of your circumstances would
be required to determine your suitability for this or any other retirement plan. Numerous technicalities have been
omitted from this introduction in order to improve readability. Some of these technicalities may have consequence for
your situation. See the Home Page of this website for further disclaimers.
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Individual K Plan:
A Retirement Plan for OWNER ONLY Businesses
The Individual K plan has many advantages, which may make it attractive for an “owner only� business.
1. Discretionary contributions
2. High limits
3. Loans
4. Consolidate multiple existing plans
Eligibility
The owner of any business, whether incorporated or unincorporated, is eligible. This includes sole proprietors,
partnerships, and corporations.
The business cannot have other employees, unless they meet one of the following criteria. 1. Under age 21. 2. Work
less than 1000 hours per year. 3. Union member 4. Non-resident alien.
Owners of part-time businesses are eligible, even if they are covered under a qualified plan with another employer.
This means that an individual with a side business, whether incorporated or not, is eligible. The Salary Deferral
Contribution from both plans combines to count against the annual limit.
Children, parents and grandparents of the owner are also eligible if they work for the business. They may be included
or excluded, as long as the business adopts consistent criteria.
Contributions: No Annual Minimums
There is no minimum annual contribution. This gives the business owner the flexibility to forgo contributions as
circumstances dictate.
Contributions: Annual Maximums
Contribution limits compare favorably with other types of qualified retirement plans. There are two parts to the
contribution.
Profit Sharing Contribution can be up to 25% of income.
Salary Deferral Contribution of up to $12,000 in 2003. This limit will increase by $1000 / year until 2006, when it
reaches $15,000.
The total of both can be up to $40,000.
Additionally, for owners over age 50, an additional catch-up contribution limit of $2000 is allowed in 2003. This
additional catch-up limit will increase by $1000 / year until 2006, when it reaches $5,000.
Contributions are not subject to AGI (adjusted gross income) limitations.
Deductibility
All annual contributions are deductible for income tax purposes. Interest or gains earned within the plan are excluded
from taxable income.
Loans
You may borrow up to 50% of your Individual K assets, up to $50,000, without triggering a taxable distribution. This
gives the business owner a source of liquidity that is much more flexible than other retirement plans.
Rollovers
Assets from other plans can be rolled into an Individual K. This includes SEP, SIMPLE, IRA, 401K, 403B, or Money
Purchase Plan. If the business already has a retirement plan, it can be converted to a Individual K or terminated and
rolled into an Individual K. This allows the business owner to consolidate various plans into one.
Roth IRA assets cannot be rolled into an Individual K.
Timing of Contributions
An Individual K Plan must be adopted before the end of the year. “Salary Deferral Contributions� must be made
prior to the end of the year. “Profit Sharing Contributions� must be made prior to filing the company’s tax
return.
Self-Direction
An Individual K set up through First Allied Securities allows the owner to direct the investment of assets.
_________________________________________________________
This document is an introduction only and is not intended as advice. A detailed analysis of your circumstances would
be required to determine your suitability for this or any other retirement plan. Numerous technicalities have been
omitted from this introduction in order to improve readability. Some of these technicalities may have consequence for
your situation. See the Home Page of this website for further disclaimers.
----------------------------------------------------------------------------------------------------------------------------------------------------
Individual K Plan:
A Retirement Plan for OWNER ONLY Businesses
The Individual K plan has many advantages, which may make it attractive for an “owner only� business.
1. Discretionary contributions
2. High limits
3. Loans
4. Consolidate multiple existing plans
Eligibility
The owner of any business, whether incorporated or unincorporated, is eligible. This includes sole proprietors,
partnerships, and corporations.
The business cannot have other employees, unless they meet one of the following criteria. 1. Under age 21. 2. Work
less than 1000 hours per year. 3. Union member 4. Non-resident alien.
Owners of part-time businesses are eligible, even if they are covered under a qualified plan with another employer.
This means that an individual with a side business, whether incorporated or not, is eligible. The Salary Deferral
Contribution from both plans combines to count against the annual limit.
Children, parents and grandparents of the owner are also eligible if they work for the business. They may be included
or excluded, as long as the business adopts consistent criteria.
Contributions: No Annual Minimums
There is no minimum annual contribution. This gives the business owner the flexibility to forgo contributions as
circumstances dictate.
Contributions: Annual Maximums
Contribution limits compare favorably with other types of qualified retirement plans. There are two parts to the
contribution.
Profit Sharing Contribution can be up to 25% of income.
Salary Deferral Contribution of up to $12,000 in 2003. This limit will increase by $1000 / year until 2006, when it
reaches $15,000.
The total of both can be up to $40,000.
Additionally, for owners over age 50, an additional catch-up contribution limit of $2000 is allowed in 2003. This
additional catch-up limit will increase by $1000 / year until 2006, when it reaches $5,000.
Contributions are not subject to AGI (adjusted gross income) limitations.
Deductibility
All annual contributions are deductible for income tax purposes. Interest or gains earned within the plan are excluded
from taxable income.
Loans
You may borrow up to 50% of your Individual K assets, up to $50,000, without triggering a taxable distribution. This
gives the business owner a source of liquidity that is much more flexible than other retirement plans.
Rollovers
Assets from other plans can be rolled into an Individual K. This includes SEP, SIMPLE, IRA, 401K, 403B, or Money
Purchase Plan. If the business already has a retirement plan, it can be converted to a Individual K or terminated and
rolled into an Individual K. This allows the business owner to consolidate various plans into one.
Roth IRA assets cannot be rolled into an Individual K.
Timing of Contributions
An Individual K Plan must be adopted before the end of the year. “Salary Deferral Contributions� must be made
prior to the end of the year. “Profit Sharing Contributions� must be made prior to filing the company’s tax
return.
Self-Direction
An Individual K set up through First Allied Securities allows the owner to direct the investment of assets.