Retirement Plans for Small Business Owners: SIMPLE may be better

In 2017, if a company sponsors a profit-sharing plan, the company could make a contribution on behalf of the business owner of as much as $54,000 . With a SIMPLE IRA, the maximum amount this year is $31,000. If that’s the case, why would you consider the latter choice?

One reason can be found in the plan’s name; a SIMPLE (savings incentive match plan for employees) IRA has less paperwork as well as lower start-up and operating costs, compared with many other types of retirement plans. As long as your company is eligible (it must have no more than 100 employees and must not sponsor another retirement plan), you can set up the plan by filling out IRS Form 5304-SIMPLE or 5305-SIMPLE.

Subsequently, there is no annual filing requirement and no testing for discrimination in favor of highly-compensated employees. The only other requirement is annual notification, which you can meet by sending each employee a copy of the original 5304-SIMPLE or 5305-SIMPLE.

A SIMPLE IRA also can work if you are just starting a company and have no employees. With other retirement plans, adding workers may require some extensive paperwork. With a SIMPLE IRA, the company just sets up an IRA for each employee who joins the plan. A SIMPLE IRA must be offered to all employees who were paid at least $5,000 in any prior two years and who are expected to earn that much in the current year.

Contribution considerations

Eligible employees can defer up to $12,500 of their compensation in 2017, deferring the income tax as well. Those 50 or older can defer up to $15,500.

With a SIMPLE IRA, employers must make certain contributions to employees’ accounts. All money that goes into a SIMPLE IRA is totally vested for the employee.

One option is to match each employee’s contribution, up to 3% of pay. (An employer may choose to match as little as 1% of employees’ contributions, for one or two years during the five-year period that ends with [and includes] the year for which the employer chooses the lower match percentage.)

Example 1: Sue Taylor, who works for ABC Corp., earns $60,000 a year. She contributes $6,000 to her SIMPLE IRA in 2017. ABC, which chose the matching option, contributes $1,800 (3% of $60,000). Therefore, the total amount moving into Sue’s account in 2017 is $7,800.

Continuing with the ABC Corp. example, suppose that Richard Palmer, the chief shareholder, is 54 years old. Richard defers the maximum $15,500 of his salary to his SIMPLE IRA. If he earns more than $516,667 in 2017, a 3% match would be another $15,500, bringing Richard the maximum $31,000 SIMPLE IRA contribution this year.

Instead of matching, a company sponsoring a SIMPLE IRA can make non-elective contributions of 2% of pay for each eligible employee, even for those who don’t contribute.

Example 2: Walt Vincent works for XYZ Corp., where he earns $50,000 a year. XYZ has chosen to make non-elective contributions to its employees’ SIMPLE IRA. Even though Walt does not contribute this year, XYZ must make a contribution of $1,000 (2% of $50,000) to Walt’s SIMPLE IRA. These non-elective contributions are capped by an annual compensation limit, which is $270,000 in 2017. As a result, with this method a company’s contribution to any employee’s SIMPLE IRA can’t exceed $5,400 this year (2% of $270,000).

Fine points

During the first two years they are in the plan, SIMPLE IRA participants owe a 25% penalty for in-service withdrawals before age 59½. After two years have passed, the regular 10% early withdrawal penalty applies. During those first two years, rollovers from a SIMPLE IRA to a traditional IRA are prohibited. Eligible companies generally must establish a SIMPLE IRA by October 1 in order to have the plan in effect for the current year. However, different rules apply to new companies that came into existence after October 1 in a year, and existing companies that previously maintained a SIMPLE IRA plan.

Social Security for Married Couples is a Numbers Crunching Game

Recent legislation has reduced Social Security claiming strategies for married couples. For example, if you failed to initiate a “file-and-suspend” plan before April 30, 2016, that opportunity is no longer available.

Still available

Another popular approach for married couples—filing restricted applications for spousal benefits—is still viable, but only for those who reached age 62 on or before January 1, 2016. The people who were grandfathered for this tactic have age 66 as their full retirement age (FRA). At FRA, someone in this age group can apply for Social Security retirement benefits, restricting the claim to a benefit that’s based on the other spouse’s work record.

Example 1: Nick and Paula Robinson are married. Nick worked for more years than Paula, earning higher pay, so Nick has the larger Social Security benefit.

Suppose Paula is now age 64. She can file a restricted application to get a spousal benefit at age 66, her FRA. Paula’s spousal benefit could equal 50% of Nick’s benefit. Paula could collect this spousal benefit while her own benefit, based on her work history, continues to grow at 8% a year under current law.

Paula can collect a spousal benefit until age 70, the latest possible starting date. Assuming that Paula’s own benefit at some point will exceed the spousal benefit she receives on Nick’s work record, Paula would eventually receive her own, larger benefit.

Example 2: Assume the same facts as in example 1. If Nick meets the age requirement, he can file a restricted application to start his spousal benefit at age 66, his FRA. At this time, he could collect a benefit based on Paula’s work record. Meanwhile, Nick’s own retirement benefit can keep growing at 8% a year until as late as age 70. (A restricted application by one spouse requires the other spouse to be receiving benefits.) If you meet the age requirement for a restricted benefit, our office can help you calculate the method that will likely have the greater payout.

No restrictions

Such restricted applications are available only to certain people who are 63 and older in 2017. Even so, there are other opportunities for all married couples to consider in their planning for Social Security.

Example 3: Steve and Vicki Baker are married, with both reaching age 61 this year. They can’t use the restricted application strategy, as explained previously. Suppose both Steve and Vicki have substantial work histories, so they’ll both receive sizable Social Security benefits, but Vicki’s benefit would be larger. One plan is for Steve to begin his own benefits at age 62, the earliest date possible, while Vicki waits until age 70.

Assuming Steve is retired (so he won’t have earnings that reduce his Social Security benefits), Steve’s benefits would provide eight years of cash flow while the couple is in their 60s. This would make it easier for the Bakers to wait until Vicki reaches age 70 to start benefits; her larger benefit would increase by approximately 8% a year while she waits to start.

Moreover, if Vicki is the first spouse to die, Steve would receive the amount Vicki was receiving, as a surviving spouse. If Steve dies first, Vicki would continue to receive her larger benefit.

Uneven benefits

Among married couples, there may be one spouse who will get a much larger Social Security retirement benefit, often because the other spouse focused on raising the children and managing the household. How might such couples proceed?

Example 4: Jim Lawson has contributed much more to Social Security than his wife, Marie. Therefore, Jim will be entitled to a $2,600 monthly benefit at his FRA, but Marie’s FRA benefit will be only $800 a month. One approach is for Jim to claim benefits at his FRA and begin receiving $2,600 a month. Marie, who is the same age as Jim, also could claim at her FRA. If so, Marie would receive a spousal benefit that’s 50% of Jim’s benefit—$1,300 a month, in this example—which would be larger than her own. Here, Marie will get a large increase in benefits if she’s the surviving spouse.

Another strategy might work for spouses of different ages:

Example 5: Suppose that Marie Lawson is a few years younger than her husband, Jim. If Jim can wait to start benefits until he’s age 70, he’ll get the maximum monthly benefit. Marie could start at age 62, the earliest possible date, claiming benefits on her own work record. Marie would receive a reduced benefit because she started so early, but she’d still obtain some cash flow.

Marie could wait until Jim is 70 and claims his maximum benefit then claim a spousal benefit, which might increase her Social Security checks. Again, increasing Jim’s Social Security benefit will also increase Marie’s survivor’s benefit, if Jim predeceases her.

Deciding when to start Social Security will depend on many factors, such as health and the need for income. HLB Gross Collins, P.C. can crunch the numbers for you to help you proceed.

May/June Dates to Remember

May/June 2017 Deadlines

MAY 2017

May 10

Employers. For Social Security, Medicare, and withheld income tax, file Form 941 for the first quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time.

May 15

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in April if the monthly rule applies.

JUNE 2017

June 15:

Individuals. If you are not paying your 2017 income tax through withholding (or will not pay enough tax during the year that way), pay the second installment of your 2017 estimated tax.

If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 and pay any tax, interest, and penalties due for 2016. If you want additional time to file your return, file Form 4868 to obtain four additional months to file, then file Form 1040 by October 16.

Corporations. Deposit the second installment of estimated tax for 2017.

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in May if the monthly rule applies.

HLB Vorarlberg joins HLB International as part of the HLB Austria Federation

HLB Vorarlberg GmbH Steuerberatung und Wirtschaftsprüfung (HLB Vorarlberg) joins HLB International as part of the HLB Austrian federation of independently owned CPA and business advisory firms.

The HLB Vorarlberg professional team, headquartered in Feldkirch (Vorarlberg), is one of the leading advisory firms in Vorarlberg and has been serving businesses and individuals since 1991. The firm provides accounting, audit, tax and consulting services, M&A and structuring. They serve clients in manufacturing, construction, high-tech and service enterprises. They have a large practice serving family-owned enterprises.

HLB Vorarlberg adds three partners and 30 staff to HLB Austria. They have an extensive client base with international businesses, particularly in Germany and Switzerland.

“The addition of HLB Vorarlberg strengthens the Austrian federation and broadens the geographic coverage in the west of Austria, which is an important economic area at the frontier of Germany, Switzerland and Liechtenstein. Collectively, the HLB Austria federation now has 9 offices served by 20 Partners and 157 staff” said Markus Grün, Partner of HLB Intercontrol GmbH, on behalf of the HLB Austria Federation.

For further information, visit or

Upcoming Deadlines and Dates To Remember

April/May 2017 Upcoming Deadlines

April 18

Individuals. File a 2016 income tax return. If you want an automatic six-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Then, file Form 1040, 1040A, or 1040EZ by October 16.

If you are not paying your 2016 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2017 estimated tax. Use Form 1040-ES.

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in March if the monthly rule applies.

Household employers. If you paid cash wages of $2,000 or more in 2016 to a household employee, file Schedule H (Form 1040) with your income tax return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. Also, report any income tax you withheld for your household employees. 

Corporations. File a 2016 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic six-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe.

Corporations. Deposit the first installment of estimated income tax for 2017.                                                                    

May 10    

Employers. For Social Security, Medicare, and withheld income tax, file Form 941 for the first quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time.

May 15

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in April if the monthly rule applies.

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