Mini(k)Plan Case Studies

Case Study Profile

Business Type:

Real Estate Broker (Independent Contractor/Self-employed Individual)

Business Entity:

Sole Proprietor or LLC taxed as Sole Proprietor

Owner's Income:

$50,000 net Schedule C earned income prior to deduction for plan contribution

Owner's Age:

45

Marital Status:

Single

Employees:

None

Plan Objective:

Maximize tax deductible contribution to provide maximum retirement benefit

Comments:

None

$12,940 more than the SIMPLE;

$16,500 more than the SEP or Keogh in 2009!

The Mini(k) permits the independent contractor to save more on an after-tax basis than the SIMPLE, SEP or so-called "Keogh" Plan. Compared to the SIMPLE Plan, this saves an additional $3,235 in taxes (assumes 25% tax bracket); compared to the SEP, this saves an additional $4,125 in taxes (assumes 25% tax bracket). But that's not all, look at the difference in benefit you gain by selecting the Mini(k) over a conventional plan.

The Mini(k) provides $1,497,968 at age 65; $728,288 more than the SIMPLE and $1,029,362 more than the SEP or Keogh!

What's the catch? Just one, in reality the Mini(k)Plan is a Profit Sharing Plan with a 401(k) feature. This means that the Mini(k) is a qualified retirement plan subject to numerous government compliance requirements. If you don't comply with these requirements, you can lose the benefits gained by choosing this plan type over a SEP or a SIMPLE. Here's a chart that illustrates just some of the compliance requirements and features for these different plan types.

Compliance Requirements and Plan Features	SEP	SIMPLE	Mini(k)Plan
Formal Plan Document	No	No	Yes
Trust Reconciliation	No	No, for SIMPLE IRA Yes, for SIMPLE 401(k)	Yes
Annual Filing	No	No, for SIMPLE IRA Yes, for SIMPLE 401(k)	Yes^*
Rollovers from other Plans and IRAs	Yes	Another SIMPLE only	Yes
Loans Permitted	No	No	Yes
Advantage to add Spouse	No	Yes	Yes
Updates Required by Law	No	No	Yes
Establish New Plan By	Due date of return or any extension	October 1 unless new employer	December 31
Must fund Employee Contribution by	Not Applicable	Corporation: Earliest date employer can transmit contributions. Sole Prop/Partner: by due date or extension.	Corporation: Earliest date employer can transmit contributions. Sole Prop/Partner: by due date or extension.
Must fund Employer Contribution by	Due date of return or any extension	Corporation: by due date of return or extension. Sole Prop/Partner: by due date or extension.	Corporation: by due date of return or extension. Sole Prop/Partner: by due date or extension
*Recommended but not required until assets exceed $250,000 This chart illustrates basic requirements only. All plans shown may be selected for audit by the government; all require timely and accurate completion of forms and other related documents when established and ongoing. Chart is intended as a resource only; consult a professional before implementing any plan.

View comprehensive chart for these plan types: "Compliance Requirements and Limits"

View comprehensive chart for these plan types: "Available Benefits and Features"

Closing Comments

A SEP or SIMPLE plan is traditionally the appropriate plan type for an independent contractor (self-employed individual). These plan types do not require formal plan documents or governmental reporting and disclosure and the additional cost for professional services typically associated with these requirements. The Mini(k) is a qualified retirement plan (Profit Sharing Plan with a 401(k) feature) requiring a formal plan document and governmental reporting and disclosure.

Bottom Line: The associated cost to establish and maintain the Mini(k) is justified based on the additional taxes you save and the dramatic increase in benefits at retirement.

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The information provided is intended as a general resource, not as investment or retirement planning, or legal plan compliance advice or counsel. If you consider any actions discussed in this update, we suggest that you consult a qualified planning, tax or ERISA professional. ERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this update. Any tax advice included in this written or electronic communication is not intended or written to be used, and it cannot be used, by the taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.