Mini(k)Plan Case Studies

Case Study Profile

Business Type:

Wholesale Electronic Parts Distributor

Business Entity:

Subchapter "S" Corporation

Owner's Income:

$130,000 W-2 earned income

Owner's Age:

45

Marital Status:

Single

Employees:

None

Plan Objective:

Maximize tax deductible contribution to provide maximum retirement benefit

Comments:

Total corporate profit before officer salary is in excess of $200,000. The shareholder/employee wants to maximize the plan contribution and minimize “earned income” reportable on W-2.

$16,500 more than the SEP or "Keogh" in 2011!

Owner needs $196,000 of W-2 income for $49,000

contribution to SEP or Keogh - $1,914 additional FICA tax!

The Mini(k) permits $16,500 more than the SEP or so-called "Keogh" Plan thereby saving the shareholder/employee an additional $5,775 in taxes (assumes 35% tax bracket). In addition, the shareholder/employee saves $1,914 in FICA tax ($1,579 in 35% bracket) since the owner can contribute the $49,000 maximum with a lower W-2 earned income ($130,000 versus $196,000) in comparison to the SEP or Keogh. The balance of the corporate profit is distributed as unearned income not subject to FICA tax. But that's not all, look at the difference in benefits you gain by selecting the Mini(k) over a conventional plan.

The Mini(k) provides $2,688,107 at age 65;

$1,770,021 more than the SIMPLE and

$1,029,362 more than the SEP or Keogh!

Learn more about increased savings provided by Roth 401(k).

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 a business owner with no employees. 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)Plan is a qualified retirement plan (Profit Sharing Plan with a 401(k) feature) requiring a formal plan document and governmental reporting and disclosure. However, in addition to a higher tax-deductible contribution, the Mini(k) allows the shareholder employee to receive a lower W-2 income and contribute the law's maximum deductible contribution. The higher plan contribution saves income tax and the lower W-2 income saves FICA tax.

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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We intend the information provided as a general resource, not as formal investment or retirement planning advice or counsel. If you consider any actions discussed in this analysis, we suggest that you consult a qualified planning professional. ERISA Expertise LLC does not warrant and is not responsible for any errors and omissions from this information. 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.