retirement plan for a partnership

Discussion in 'Financial Planning' started by BreadWithSpam@fractious.net, Jul 14, 2010.

  1. Guest

    Just looking for some feedback:

    Simple partnership, no non-partner employees. Income, etc all passed
    to partners via K-1.

    Several partners are s-corps - individuals who've incorporated
    as a wrapper around themselves and the s-corp therefore receives
    the K-1 and passes the income as wages to those individuals.

    Some retirement plan options:

    The partnership establishes a SEP. Accounts are opened for each
    individual partner and contributions are made based on the income
    apportioned to the partners. (cheapest option with least burden on
    individuals).

    The partnership establishes a formal 401(k), possibly with Roth
    options. (This would let those partners who earn less than $245k
    make bigger contributions than the SEP, as they'd get to make
    employee contributions and get above the 20% cap. (expensive option)

    The partnership establishes *nothing* at all. All income is
    pass-thru to the partners via K-1s. Each partner may establish
    his or her own retirement plan as he or she likes - SEP-IRAs,
    solo-401(k)s, or nothing at all. (cheapest options, most
    flexibility, most burden on individuals to figure out what they want
    and implement it).

    Any feedback or other ideas folks here can provide for me will be
    most appreciated.
    Thanks in advance!




    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
     
    , Jul 14, 2010
    #1
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  2. On Tue, 13 Jul 2010 20:05:51 -0500, wrote:


    > The partnership establishes *nothing* at all. All income is
    > pass-thru to the partners via K-1s. Each partner may establish
    > his or her own retirement plan as he or she likes - SEP-IRAs,
    > solo-401(k)s, or nothing at all. (cheapest options, most
    > flexibility, most burden on individuals to figure out what they want
    > and implement it).


    Assuming all partners are mature adults and there are no plans to hire
    non-partner employees, I vote for keeping things simple. My
    experience is that the simplest plans/affairs are usually the best.

    Good luck.
     
    HW \Skip\ Weldon, Jul 14, 2010
    #2
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  3. Guest

    "HW \"Skip\" Weldon" <> writes:
    > On Tue, 13 Jul 2010 20:05:51 -0500, wrote:


    > > The partnership establishes *nothing* at all. All income is
    > > pass-thru to the partners via K-1s. Each partner may establish
    > > his or her own retirement plan as he or she likes - SEP-IRAs,
    > > solo-401(k)s, or nothing at all. (cheapest options, most


    > Assuming all partners are mature adults and there are no plans to hire
    > non-partner employees, I vote for keeping things simple. My
    > experience is that the simplest plans/affairs are usually the best.


    Thanks so much Skip.

    To be quite honest, I wasn't entirely certain that this was a
    viable option. I couldn't see any reason why it couldn't be,
    but reading through the literature which discusses retirement
    plans and partnerships, it always always discusses the context
    wherein the partnership sets up the retirement plan. I found
    one reference online wherein an a CPA indicated that dealing
    with it on the individual level was preferable and, as I said,
    I saw nothing which said it couldn't be done. I just haven't
    actually seen it done anywhere.

    Given the possibility of doing it this way, I'm not entirely
    sure why any partnership would do it any other way unless, I
    suppose, the partnership has lots of employees in addition
    to the partners and wanted to offer the employees some options
    without the partners having to pay for it themselves (ie. they
    could go with a 401(k) allowing employee contribs).

    I love the idea of having the partners each do as they like -
    there are a few who will want to do solo-401(k)s so they can
    keep funding non-deductible IRAs and doing tax-free conversions,
    and also maybe take advantage of Roth options in the solo-ks.

    That reminds me - as far as I know, Schwab and Fidelity do
    not offer Roth options on their solo-k products. E-Trade
    does and, I believe Vanguard does. Have folks experience
    with any of the other low-cost providers?

    I haven't looked at Vanguard's brokerage services in a long
    time - they used to be pretty expensive and I don't remember
    anyone really liking them for that. Direct fund accounts
    were fine, of course. Anyone using VBS now? How do you like it?
    I love the propect of no-commision access to Vanguard ETFs,
    so long as there are non-Vanguard ETFs available with good
    low commissions, too.



    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
     
    , Jul 15, 2010
    #3
  4. wrote:

    >I haven't looked at Vanguard's brokerage services in a long
    >time - they used to be pretty expensive and I don't remember
    >anyone really liking them for that. Direct fund accounts
    >were fine, of course. Anyone using VBS now? How do you like it?
    >I love the propect of no-commision access to Vanguard ETFs,
    >so long as there are non-Vanguard ETFs available with good
    >low commissions, too.


    I have an account with VBS and they are fine. But I am not a very demanding
    user. I only make a hand full of trades in a year, so their commissions are not
    a big issue for me. Last time I looked, they were a few bucks higher than
    others, but I moved multiple accounts to Vanguard just to simplify things. That
    simplicity is worth $20 a year or so in extra commissions.

    -- Doug
     
    Douglas Johnson, Jul 16, 2010
    #4
  5. <> wrote in message
    news:...

    Lots of snippage!

    > Simple partnership, no non-partner employees. Income, etc all passed
    > to partners via K-1.
    >
    > Several partners are s-corps - individuals who've incorporated
    > as a wrapper around themselves and the s-corp therefore receives
    > the K-1 and passes the income as wages to those individuals.
    >
    > Some retirement plan options:
    >
    > The partnership establishes a SEP.
    > The partnership establishes a formal 401(k), possibly with Roth
    > options.
    > The partnership establishes *nothing* at all. All income is
    > pass-thru to the partners via K-1s. Each partner may establish
    > his or her own retirement plan as he or she likes
    > Any feedback or other ideas folks here can provide for me will be
    > most appreciated.
    > Thanks in advance!
    >
    >
    >
    >
    > --
    > Plain Bread alone for e-mail, thanks. The rest gets trashed.



    First, keep in mind that while the company can sponsor a retirement plan,
    the pan is for INDIVIDUALS. So the S Corps that are members won't get a
    contribution from the partnership. However, the partnership's contribution
    on behalf of the individual members will reduce overall income, providing a
    tax benefit to the S Corp owners.

    When I first start talking to my clients about them starting a retirement
    plan the VERY FIRST question I ask is "how much money does the company have
    to spend on this?" This is important because of contribution costs,
    matching contribution costs and admin and maintenance costs.

    If the company is small, doesn't have many employees or doesn't pay them
    much but wants to offer them an opportunity a SIMPLE IRA is a good choice.
    The company only has to match IF the employee defers income - no income, no
    deferral. This lets owners slant the plan in their favor. Deferrals cap
    out at around $10K annually, depending on age. There are virtually no plan
    establishment or maintenance costs BUT the company may have to pony up 3% of
    the employee's gross income. So if you have someone making $100K a year you
    could be on the hook for $3K for that person alone.

    SEPs offer greater flexibility and larger contribution (and matching)
    amounts BUT they cost more. SEPs are funded with company money and you
    can't discriminate - so if your SEP puts in 25% of your salary it has to put
    in 25% of everyone's salary.

    401Ks have annual maintenance costs too - about the cheapest I've seen is
    around $1K annually. BUT these can be set up so the company puts in NOTHING
    for the employees. You do have to be aware that these plans have top heavy
    testing rules so you can't favor an owner or highly compensated employee.

    There are several other types of plans as well, some allowing as much as
    $165K in contributions per participant. BUT they are costly to maintain and
    are only a reasonable option if you have a LOT of money you want to shield.

    If all you want to do is spend $5K or less per year per person your other
    option is to simply bonus the money to the employee and let them fund their
    own IRA account - deductible, nondeductible or Roth. Remember, employee
    deferrals to company sponsored plans still require the withholding and
    payment of FICA taxes. So paying the bonus to the employee lets them have
    withholding for FICA while they get the tax deduction on their personal
    return.

    One of the things you need to look at are the common ownership
    antidiscrimination rules. I do NOT have a cite handy but I seem to recall
    that there are regulations that require that every company that is part of a
    commonly controlled group offer the same plan to all the employees. So if I
    own 20% in this partnership through my S Corp and I own at least 20% is my S
    Corp I may have to adopt the same retirement plan for all the employees in
    BOTH companies - you need to check on this before you set something up that
    could impact others in your group.

    Good luck,
    Gene E. Utterback, EA
     
    Gene E. Utterback, EA, RFC, ABA, Aug 3, 2010
    #5
  6. bo peep Guest

    On Aug 3, 11:07 am, "Gene E. Utterback, EA, RFC, ABA"
    > 401Ks have annual maintenance costs too - about the cheapest I've seen is
    > around $1K annually.


    I think the Costco one would possibly be quite a bit less than that.
    See
    http://www.401kpricing.com/costco
     
    bo peep, Aug 3, 2010
    #6
  7. Guest

    bo peep <> writes:
    > On Aug 3, 11:07 am, "Gene E. Utterback, EA, RFC, ABA"
    >> 401Ks have annual maintenance costs too - about the cheapest I've seen is
    >> around $1K annually.

    >
    > I think the Costco one would possibly be quite a bit less than that.
    > See
    > http://www.401kpricing.com/costco


    Gene and Bo, thanks for the suggestions. I think that for the folks in
    question, since the partnership has no non-partner employees, there's
    little reason for anything to be done at the partnership level. Looks
    like they're going to just shut down the whole qualified profit-sharing
    plan altogether and let individuals do the self-employeed thing on their
    own.

    That said, we did price out some 401(k) options, both for running at the
    partnership level and for "solo" self-employed 401(k)s.

    That Costco/ING/Sharebuilder plan is actually not that great a deal, but
    it's also not bad. Except for the solo-401(k) - for which it seems
    expensive. Schwab, Fidelity, ETrade and Vanguard all have solo-401(k)
    plans with no participant asset management fees or annual fees. They
    make money from folks either buying securities and paying commissions or
    from the revenue sharing for the no-transaction-fee funds they offer.
    In fact, ETrade and Vanguard both apparently offer not just solo-401(k),
    but solo-401(k) with *roth* options, too.

    We got some pricing for doing a regular 401(k) at the partnership level,
    which would be a good choice if they had or planned on hiring additional
    employees to whom they'd wanted to offer a retirement plan. At the
    asset level we're talking here, assuming some reasonable proportion of
    the assets go into their preferred funds (ie. the ones with revenue
    sharing, or their own funds), there'd be anywhere from zero additional
    costs at all to as much as a couple of thousand dollars. Including
    everything - them acting as trustee, custodian, etc, doing the form
    5500, etc.

    Still, with no non-partner employees, just letting the self-employment
    income flow through to the individuals and letting the individuals do
    their own thing - SEP or solo-401(k) likely - looks like the most
    flexible and cost-efficient path for them. If anyone sees anything
    wrong with this plan, I'd really appreciate hearing it. Thanks again.

    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
     
    , Aug 4, 2010
    #7
  8. "bo peep" <> wrote in message
    news:...
    > On Aug 3, 11:07 am, "Gene E. Utterback, EA, RFC, ABA"
    >> 401Ks have annual maintenance costs too - about the cheapest I've seen is
    >> around $1K annually.

    >
    > I think the Costco one would possibly be quite a bit less than that.
    > See
    > http://www.401kpricing.com/costco
    >


    I chased the link Bo provided and the costs I saw looked very reasonable. I
    was not able to tell, and didn't have a lot of time to poke around so I
    could have missed it:

    a - is the monthly admin fee per employee?
    b - is the monthly admin fee paid by the employee or the employer?
    c - Page 8 of the free report shows their average annual fee to be $1140 -
    pretty close to my $1K estimate;
    d - I could not tell whether their annual admin fee covers the 5500 tax
    return or not.

    Even their cheapest plan (PLAN4TEN) costs $95 per month - or $1,140 a year -
    again, real close to my $1K estimate.

    And this is just the ING Sharebuilder plan with the Costco Private Label.

    I also noted in their literature that "index funds are hard to beat." I
    like index funds too, but I wonder if they offer other options. Using index
    funds is a great way to keep costs down but it also limits your investment
    options.

    I think the big caveat here is to shop around - look for something that fits
    your needs - compare prices, by all means - then make an informed decision.

    Gene E. Utterback, EA, RFC, ABA
     
    Gene E. Utterback, EA, RFC, ABA, Aug 5, 2010
    #8
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