Category Archives: Investing and fiduciary requirements

Retirement Plans for Self-Employed People

This post is from the IRS quarterly newsletter.

Retirement News for Employers – Spring 2011 – Retirement Plans for Self-Employed People

Are you self-employed? Did you know you have many of the same options to save for retirement on a tax-deferred basis as employees participating in company plans?

Here are highlights of a few of your retirement plan options.

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)


  • You can put all your net earnings from self-employment in the plan: up to $11,500 (plus an additional $2,500 if you’re 50 or older) in salary reduction contributions and either a 2% fixed contribution or a 3% matching contribution.
  • Establish the plan:
  1. complete
  • Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – for Use With a Designated Financial Institution,
  • Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – Not for Use With a Designated Financial Institution, or
  • an IRS-approved “prototype SIMPLE IRA plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
  1. open a SIMPLE IRA through a bank or another financial institution.
  • Set up a SIMPLE IRA plan at any time January 1 through October 1. If you became self-employed after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively feasible after your business starts.

Simplified Employee Pension (SEP)

  1. complete
  • Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement, or
  • an IRS-approved “prototype SEP plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
  1. open a SEP-IRA through a bank or other financial institution.

Set up the SEP plan for a year as late as the due date (including extensions) of your income tax return for that year.

401(k) Plan

  • Make salary deferrals up to $16,500 (plus an additional $5,500 if you’re 50 or older) of your compensation from the business either on a pre-tax basis or as a designated Roth contribution.
  • Contribute up to an additional 25% of your net earnings from self-employment (not including contributions for yourself), up to $49,000 including salary deferrals.
  • Tailor the plan to allow you access to the money in the plan through loans and hardship distributions.
  • A one-participant 401(k) plan is sometimes referred to as a “solo-401(k),” “individual 401(k)” or “uni-401(k).” It is generally the same as other 401(k) plans, but because there are no other employees, other than the spouse, that work for the business, it is exempt from discrimination testing.


Other Defined Contribution Plans

  • Profit-sharing plan: allows you to decide how much to contribute on an annual basis, up to 25% of compensation (not including contributions for yourself) or $49,000.
  • Money purchase plan: requires you to contribute a fixed percentage of your income every year, up to 25% of compensation (not including contributions for yourself), according to a formula stated in the plan.


Defined Benefit Plans
  • Traditional pension plan with a stated annual benefit you will receive at retirement, usually based on salary and years of service.
  • Benefit may also be defined based on a cash balance formula in a hypothetical individual account (a cash balance plan).
  • Maximum annual benefit can be up to $195,000.
  • Contributions are calculated by an actuary based on the benefit you set and other factors (your age, expected returns on plan investments, etc.); no other annual contribution limit applies.

Retirement plans for self-employed people were formerly referred to as “Keogh plans” after the law that first allowed unincorporated businesses to sponsor retirement plans. Since the law no longer distinguishes between corporate and other plan sponsors, the term is seldom used.

Dollar figures are for 2011 and are subject to annual cost-of-living adjustments.


Are you a business owner, personally guaranteeing a loan?

It is not unusual for businesses to borrow money from banks and other
financial institutions. Loans and lines of credit can help even out the ups and
downs of cash flow so a business can smoothly meet its payroll and other
financial obligations. Borrowing can also help a company capitalize on unique
growth and profit-making opportunities.  While borrowing money to run your business can be beneficial, without a plan, it can also create difficult problems.

Your Personal Guarantee
When a bank lends money to a business, it normally requires the owners to
sign personal guarantees. When you give a bank your personal guarantee,
you have signed the loan documents twice: once as an officer of the business
and a second time as a guarantor. Personal guarantees often permit the bank
to demand repayment from either your personal assets or your business assets
if there is a default. The bank gets to choose.

This potentially presents two problems:

Problem #1
Your personal guarantee may create a serious financial problem for you and your family. That’s because in the event of a default, the guarantee permits the bank to come to you personally for repayment. It doesn’t have to go to the business to be repaid; it can come straight to you. If you were to die unexpectedly, your personal guarantee potentially puts the bank ahead of your spouse and children in the distribution of your assets. After the bank is paid, your family could then seek reimbursement from the business. Unfortunately, this could take months – if the business is able to repay them at all. Until then, your family will have to bear the loss.

Problem #2
There is a different problem if your business has multiple owners. Suppose your bank lends your business
money for capital and expansion and all the owners sign personal guarantees. If one of the other owners dies unexpectedly, the bank may have the right to call the loan and demand the entire repayment from you. The bank may not have to look to the business or to the other owners to get repaid. It may be able to recover the entire debt just from you. Then it will be up to you to get the business or other owners to reimburse you.

The Solution: Key Person Life Insurance
When you personally guarantee the loans of your business, you are personally taking on a new financial risk, a risk you probably don’t want. To transfer some of this risk back to the company, your business can purchase and own a life insurance policy on each owner and key employee. The policy death benefits are payable to the business as the beneficiary and can be used to repay the outstanding loans when the insured dies. These policies protect you if a co-owner dies. They also should protect your family in the event of your death. If the policy is properly managed, the death benefits may be income tax free under IRC Section 101.

PPACA: CMS Sticks with 10% Rate Review Trigger

Published 5/19/2011 

The Centers for Medicare and Medicaid Services (CMS) plans to use a 10% cut-off to decide whether to look more closely at individual and small group health insurance rate hikes in states.

The 10% threshold will apply both in states where CMS handles rate reviews and in states that do the reviews themselves, officials say.

CMS, an arm of the U.S. Department of HealthPPACA toolkit and Human Services (HHS), will begin to apply the review program rules Sept. 1.

Starting Sept. 1, 2012, each state will get its own review threshold, officials say.

CMS has described the rate review program regulations in an early version of the 94-page Rate Increase Disclosure and Review final rule.

The final rule, set to appear Monday in the Federal Register, will implement Section 1003 of the Patient Protection and Affordable Care Act of 2010 (PPACA).

PPACA Section 1003 requires HHS and the states to develop a process for conducting annual reviews of “unreasonable increases in premiums for health insurance coverage.”

HHS is encouraging states to conduct their own rate reviews. In states where regulators cannot or will not conduct reviews, an arm of CMS will conduct the reviews.

Originally, the rules were set to take effect July 1; CMS responded to pleas for relief from industry commenters by pushing the effective date back two months.

Many state regulators and insurance industry commenters also had asked CMS to reconsider using a 10% review threshold in every state. They suggested that the 10% threshold would lead to reviewers reviewing virtually all proposed rate increases in many states.

CMS declined to change cut-off.

Health Saving Account Limits for 2012


The 2012 limits for HSAs have been released by the IRS in Revenue Procedure 2011-32.

Minimum Annual Deductibles

There is no change in the minimum annual deductibles required for a plan to be considered a “high deductible health plan”, or “HDHP”.  They remain at $1,200 for single coverage and $2,400 for family coverage.

Out of Pocket Maximums

The maximum out of pocket maximums for HDHPs for 2012 will increase to $6,050 for single coverage and $12,100 for family coverage (2011 levels are $5,950 single/ $11,900 family).

Annual Individual Contribution Limit

The maximum permitted contribution to the HSA on behalf of an individual increases to $3,100 for an individual with single coverage and  $6,250 for an individual with  family coverage (2011 levels are $3,050 single/ $6,150 family).

How much do we really spend on health care?

May 20th, 2011 by

It comes as no surprise that we in the U.S. spend substantially more on health care than any other developed nation. Still, the cold, hard numbers — as shown in a recent study put out by the Kaiser Family Foundation — are shocking. The significant spending gap, first measured in 1970, swelled in 2008 to 91 percent more than other developed countries around the world.

A brief history of numbers:

  • When first measured in 1970, U.S. health care costs per capita were 58 percent higher than other wealthy countries, including Canada, the Netherlands, Switzerland, the United Kingdom and Japan
  • By 1980, the gap had shrunk to 51 percent
  • Just ten years later, in 1990, costs had soared to 86 percent higher
  • The gap shrank slightly, to 84 percent, between 1990 and 2000, before climbing to 91 percent in 2008

This timeline is complimented by data showing how health care costs have devoured our national GDP: in 1970, the U.S. spent 7 percent of its Gross Domestic Product on health care, 37 percent more than other developed countries. By 2008, this number had risen to 16 percent, 58 percent higher than average.

So, what do we do with these numbers? Study authors suggest: “This growing gap between health spending in the U.S. and that of other developed countries may encourage policymakers to look more closely at what people in the U.S. are getting for their far higher and faster growing spending on health care.”

Judging from ASJ’s recent Health Insurance Market Study, many agents agree that a closer look is needed. When asked whether you supported the new federal health care laws, 51 percent of you said yes — although just 3 percent wanted to keep the laws in their current form.

Looking at the numbers, it’s difficult to deny that reform is needed. Looking at the Affordable Care Act, it’s difficult to deny that there are some substantial holes. How would you fix things? Drop us a line at and let us know which direction you think reform should take.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck