QUESTION ON SIMPLE RETIREMENT PLANS

Larry, Could you give me information on SIMPLE retirement plans for my employees.

Inus

Inus, here is the information on SIMPLE plans that you requested.

“SIMPLE” retirement plans: This is the acronym for “savings incentive match plan for employees.” This type of plan is targeted at businesses with 100 or fewer employees, and is designed to offer greater income deferral opportunities than individual retirement accounts (IRAs), with fewer restrictions and administrative requirements than traditional 401 pension or profit-sharing plans.

Under a SIMPLE plan, any employee with compensation of at least $5,000 must be permitted to enter a “qualified salary reduction arrangement.” Under this arrangement, an employee can elect to have a percentage of compensation not in excess of $11,500 (in 2009) set aside in an IRA, instead of receiving it in cash. This maximum is indexed for inflation each year.

Amounts taken out of the employee's salary and contributed to a SIMPLE IRA are not taxed to the employee until withdrawn from the SIMPLE IRA. Early withdrawals may be subject to a 10% penalty (25%, if the withdrawal is made within the first two years).

Under a qualified salary reduction arrangement, the employer must make “matching” contributions to the SIMPLE IRA. That is, the employer must make contributions to an employee's SIMPLE IRA in the same amount as the employer contributed under the employee's salary reduction election, up to 3% of the employee's compensation. For example, if an employee with compensation of $50,000 elects to have 10% of his pay contributed to the plan ($5,000), the employer must contribute an additional $1,500 (3% of $50,000). For these purposes, an employee's compensation is the amount reported on his Form W-2, plus the amount of elective deferrals (e.g., the amount of the salary reduction contributed to the SIMPLE IRA). But the matching contribution for the year cannot exceed $11,500 in 2009. This amount is indexed for inflation each year.

If an employer wishes to contribute less than 3%, he can give employees proper notice and drop the contribution to as low as 1% of compensation, as long as this isn't done for more than two years out of the five-year period ending with the year of reduced contributions.

Alternatively, instead of making “matching” employee contributions, the employer can simply contribute a flat 2% of “compensation” (limited to $245,000 for 2009, and as adjusted for inflation in following years), for every employee eligible to participate in the plan, whether the employee elects to reduce his salary or not. Special notice must be given to employees if the employer wishes to take this approach.

SIMPLE plans have the advantages of simplified reporting requirements and the absence of the qualification rules prohibiting the plan from discriminating against lower-level employees. Some employers consider the matching contribution requirements a disadvantage. Additionally, to be eligible to adopt a SIMPLE plan, an employer must not contribute to, or accrue benefits under, any qualified retirement plan for services provided during the year (or in any year after the qualified salary reduction arrangement takes effect.

As I mentioned, this may by a good time to reassess the retirement planning approach for your business. Please call if you wish to discuss this topic further.

It is a pleasure serving you.

Larry Kopsa CPA

QUOTE OF THE WEEK

"Knowledge comes, but wisdom lingers."
Alfred Lord Tennyson,English poet

YOU THINK TAXES ARE HIGH NOW...YOU AIN'T SEEN NOTHIN YET!

The attached Wall Street Journal article gives us a good idea of what we are looking at to balance the budget. It ain’t pretty. Oh, and forget about “read my lips,” this does not just hit those with income greater than $250,000, it hits all of us. Taxes too high? Wall Street Journal.

IRRIGATION RESTRICTIONS A POSSIBILITY IN CENTRAL NEBRASKA

(Associated Press/JournalStar.com) -- The AP reports that some Nebraska officials are suggesting "an irrigation shutdown in a large swath of the Republican River basin during dry years to help send Kansas the water it is owed."

An official who spoke to the AP on the condition of anonymity said that "under the plan presented to natural resources districts, groundwater wells within possibly a couple miles of the river and its main tributaries that irrigate between 250,000 acres and 334,000 acres would be shut down" during "water-short years when Harlan County Lake was less than about one-third full."

See the story at <http://journalstar.com/news/state-and-regional/nebraska/article_0eb3d738-9199-11de-91f2-001cc4c03286.html>

CATTLEMEN REPORT TUBERCULOSIS CAUSING PROBLEMS IN THE CATTLE INDUSTRY

(Associated Press/Omaha.com) -- The AP reports that "bovine tuberculosis has created costly problems for the cattle industry in states where the disease has appeared, but it appears to be a manageable threat."

According to the story, Nebraska and Texas are "investigating positive cases of bovine tuberculosis", but "cattlemen and others say few cases have been confirmed and the disease is proving more of a nuisance than a real threat to their roughly $60 billion industry." Nebraska seeks "to keep its official tuberculosis-free designation to avoid additional testing requirements. It has tested 10,500 cattle since June with no new cases found."

See the story at <http://omaha.com/article/20090827/MONEY/708279916>

I AM GETTING MARRIED, NOW WHAT?

I finally found the man of my dreams and we are getting married this month. Is there anything I need to do before for taxes?

Mona

Mona, congratulations. I wish you well. I remember a toast that I gave at a wedding when I was honored to be the best man. “A man marries a woman thinking she will never change, and a woman marries a man thinking that they can change them - and they are both wrong.” The toast did not work because four years later they were divorced. Speaking of divorce, consider talking to your lawyer about a pre nuptial agreement. Not a bad document to have just in case.

Enough of that… here are the tax things that you need to think about.

1. Notify the Social Security Administration to report any name change, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.

2. Notify the IRS If you have a new address. You should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from the IRS website IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).

3. You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.

4. Notify Your Employer(s) to report any name and address changes to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.

Also consider checking your withholding. If both you and your spouse work (I hope he does. If he is unemployed you might want to think about this), your combined income may place you in a higher tax bracket. There is an IRS Withholding Calculator at www.irs.gov that will help you and will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate. You can print it out and give it to your employer so they can withhold the correct amount from your pay.

Best of luck and again congratulations.

Larry Kopsa CPA

GOVERNMENT TRUE-ISMS

A government which robs Peter to pay Paul can always depend on the support of Paul. -George Bernard Shaw