| Our Contact Info: |
13951 N. Scottsdale Rd. Suite 222
Scottsdale, Arizona 85254
Phone: (480) 563-9808
Fax: (480) 563-3724 |
|
 |
| |
Enterprise Pensions, Inc. specializes in
the design and administration of Qualified Retirement Plans
for small-business owners. Among our services, we will calculate
your tax-deductible contributions and keep your plan in compliance.
However, we do not sell any financial products, nor do we
give investment advice. You’re free to invest on your
own, or if you prefer, find a professional financial consultant
to invest on your behalf.
Whether you invest on your own or you get help, qualified
plan investing has special considerations. The following guidelines
are extremely important in ensuring your qualified plan stays
out of trouble.
|
| |
|
| |
 |
All contributions must be in cash.
So if, for example, you have a stock or a real estate
parcel that you want to purchase for your qualified plan,
make sure your purchase is with funds already deposited
in the plan. |
|
Contributions for a plan year
can be deposited as late as 8½ months after the
end of the plan year, even if your business is
on a cash accounting basis. For instance, if your tax
year (and plan year) ends on December 31, 2005, contributions
between January 1, 2005 and September 15, 2006 are eligible
to be deducted for the 2005 tax year. Stated differently,
contributions between January 1, 2006 and September 15,
2006 can be deducted in either 2005 or 2006. Be careful
not to over-contribute during the plan year, since excess
contributions are subject to a non-deductible excise tax. |
| |
Note: To
be deductible, contributions must be deposited by the
extended due date of your business’ tax filing.
Thus, you’ll need to file extensions if you need
extra time to fund your plan. |
|
Avoid the “Prohibited Transaction”.
Laws designed to prevent abuse may prohibit you from making
a seemingly legitimate investment. As long as you follow
the guidelines below, you should be in good shape. Please
check with us before investing, however, if there’s
any question in your mind. The IRS has procedures in place
to detect Prohibited Transactions, and the fines can be
hefty.
| * |
Avoid qualified asset transactions
involving:
1. Relatives
2. Business partners, or other business entities
in which you are (at least) a 10% shareholder
or have a 50% ownership interest
3. People providing services to the plan,
such as your accountant and financial consultant
4. Any combination of the above, for example,
a business in which your father is a 25% shareholder. |
| * |
Assets cannot be used to benefit
you or your business. For example, your plan
cannot own a house that you (or your relatives)
pay rent to live in. Or, your plan cannot
lend money to your business, even under the
same terms and conditions that a bank would
require. |
| * |
Before any transaction, ask
yourself, “Would this be viewed as an
independent, arm’s-length transaction?” |
|
|
Real estate, or other
physical property, can be purchased by your qualified
plan (but make sure the purchase is not a Prohibited Transaction!)
However, the fair market value of the property should
be readily determinable. After all, the total value of
your plan’s assets figure into how much of a contribution
you can deduct. So if the IRS, for example, claims you’ve
undervalued your property, they’ll disallow part
of your deduction. |
|
Diversify! We recommend
this because the IRS requires it. (Remember, we don’t
give investment advice!) While this rule is designed to
protect employees covered by a qualified plan, there’s
no exception for plans with few or no employees. So even
though it’s doubtful the IRS would penalize a plan
for not diversifying when employee protection is not an
issue, we advise against investing all plan assets in,
for example, only one stock or only one real estate parcel. |
|
Loans are permissible.
However, there are limitations as to how much you can
borrow, and the loan must be structured similar to how
a bank would structure a loan (including the necessary
paperwork). Please contact us before borrowing from your
qualified plan. |
|
Withdrawals. The IRS has
tried very hard to discourage withdrawals from qualified
plans until retirement age (or an employee’s separation
from service), and the IRS has been fairly successful.
Figure on not having access to your plan’s assets
until at least age 55. We recommend consulting with a
tax advisor prior to withdrawing any assets. |
|
Unrelated Business Income Tax (UBIT).
As you know, the investment earnings on your plan assets
are tax-deferred. However, if your plan has non-passive
investments that produce income either by selling goods
or providing services, that income may be subject to UBIT.
Further, if any investments are debt-financed, such as
purchases using margin accounts, the resulting income
may be subject to UBIT. Check with your accountant to
find out if you have plan income subject to UBIT. |
|
| |
|
| |
In summary, your qualified plan is an excellent
vehicle for deferring taxes by making deductible contributions.
Further, your tax-deferred investment return will be significantly
higher than if your initial investment had been reduced by taxes.
In exchange, you must be aware of the restrictions and limitations
imposed by the IRS and the Department of Labor regarding how
assets can be invested.
These guidelines are not intended to provide a detailed analysis
of the laws affecting qualified plan investing. Although we’re
available to discuss how the relevant laws impact your particular
situation, if there’s any uncertainty as to the legality
of your situation, we recommend you contact an ERISA attorney
for a second opinion.
|
|
|
 |
|
