With this blog post I’m beginning a two-part series about retirement savings plans available to the small business owner. Earlier Jonathan and I have written about the Traditional IRA and the Roth IRA. In this piece I’m going to explain the Simplified Employee Pension, or SEP IRA. It is best used in a small shop, with few (or no) employees. It can be established by an individual proprietor, filing a Schedule C, or by a corporation, LLC, or partnership.

The SEP – Simplified Employee Pension
The SEP is designed for the business owner with few employees. Money goes into the SEP from employer contributions only. All contributions are tax-deductible to the employer. There is no opportunity for employee deferrals. A SEP IRA account is opened for each participant, and all funds contributed are immediately vested. (There is an older version, called a SARSEP, or salary reduction SEP. Although many are still out there, they cannot be opened after 1996.)

The employer must...

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The Big Tax Code Revision

Major news! The tax code revision is now law. In this blog post I want to review the major changes on individual tax returns. In subsequent posts I’ll cover the changes to business taxation, and then given an opinion on the whole thing. This will of necessity be a long post, so please bear with me.

The new individual provisions mostly take place in 2018, and expire at the end of 2025. The changes to corporate changes are permanent. This has to do with the arcane way bills move through the legislative process in Congress.

The general flow of the form 1040, or the long form, is this:

Income goes on lines 7-22
This is taxable income from wages and business interests, and from investment earnings. Taxable income also includes alimony received, capital gains and losses, IRA and retirement account distributions, rental real estate income, farm income, unemployment compensation, and social security benefits. Yes; social security benefits are taxable; see a special

Adjustments to...

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3 Things You Need to Know About the Roth IRA

One of the most popular ways to save for retirement is in a Roth Individual Retirement Account. The Roth IRA was first made available in 1997, after they were championed by former Senator William V. Roth of Delaware.

What is a Roth IRA?
Tax-wise, a Roth IRA is like a Traditional IRA in reverse. It may help to compare the two registrations.

In a Traditional IRA, as well as in a 401k, most people get tax deductions for contributing dollars up to certain limits every year. The account accumulates funds over time, perhaps generating some nice earnings, tax-deferred. When it’s time to retire, the full amount of the distribution is taxable at whatever your marginable tax bracket is at that time. Using simple math, if your tax bracket at retirement is 25% and you distribute $100 from your Traditional IRA you will get to keep $75. Remember, distributions from a Traditional IRA are fully taxable. Contributions are made before tax.

A Roth IRA is tax-favorable in the long term
By contrast...

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A Guide to 403b Retirement Accounts


A retirement plan sponsored by a non-profit
Most people are familiar with the 401k, but what’s a 403b? Basically a 403b is a retirement plan that is sponsored by a 501c3 organization, meaning a not-for-profit employer. A local school board or hospital are good examples. The employee invests in mutual funds or annuity contracts – the only choices available. If annuity contracts are the only investment choice, the plan is likely administered by an insurance company, and can also be known as a TSA, or tax-sheltered annuity.

Money can go into your account from two sources: deferrals from your paycheck (money that you could have taken in cash) and your employer can also make contributions. The employer’s contributions can be discretionary or according to a match formula. Say the employer will offer you 50 cents on the dollar of whatever you contribute, up to 6% of your earnings. That’s a fairly typical formula. We’ve seen some out there more generous, and...

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Taxation of Social Security Benefits


Oh yes. Many new Social Security retirees get a big surprise when they learn about the taxation of social security benefits. This started during the Clinton administration. That administration added a formula to the tax code to determine how much, if any, of your Social Security benefit is subject to tax. Previously social security benefits did not count as taxable income at all.

Provisional income
This formula is called the provisional income formula. It boils down to this: add all of your income together – wages, business earnings, tax-free bond income (yes – non-taxable income is included in this formula), IRA distributions – everything – plus ½ of your social security benefit. If the result falls into the following ranges, then that portion of your social security income gets taxed along with everything else:

Married filing jointly
If provisional income is:

  • <$32,000, then no social security benefit gets taxed
  • $32,000 to $44,000, then 50% of...
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