The Retirement Plan Designed for Independent
Contractors and Owners of Very Small Businesses
Think it's easy to choose the optimum plan to address your individual needs and desires?
Think again...
The odds of choosing the optimum plan are greater than
100 to 1
Learn more about your odds for choosing the optimum plan
"The Mini(k) Advantage" At any Age or Income, Higher Tax-Deductible Contributions and Benefits!
| Earned Income1 | $25,000 | $50,000 | $100,000 | $116,000 | ≥$220,000 | |
| Age 25 | Mini(k) | $21,250 | $27,500 | $40,000 | $44,000 |
$70,0002 |
| SEP | $6,250 | $12,500 | $25,000 | $29,000 | $44,000 | |
| Mini(k) Advantage | $15,000 | $15,000 | $15,000 | $15,000 | 26,0002 | |
| Age 35 | Mini(k) | $21,250 | $27,500 | $40,000 | $44,000 |
$70,0002 |
| SEP | $6,250 | $12,500 | $25,000 | $29,000 | $44,000 | |
| Mini(k) Advantage | $15,000 | $15,000 | $15,000 | $15,000 | $26,0002 | |
| Age 45 | Mini(k) | $21,250 |
$62,5003 |
$110,0002 |
$117,6002 |
$117,6002 |
| SEP | $6,250 | $12,500 | $25,000 | $29,000 | $44,000 | |
| Mini(k) Advantage | $15,000 | $40,5003 | $85,0002 | $88,6002 | $73,6002 | |
| Age 55 | Mini(k) |
$44,9003 |
$69,8503 |
$119,7002 |
$135,7002 |
$194,6002 |
| SEP | $6,250 | $12,500 | $25,000 | $29,000 | $44,000 | |
| Mini(k) Advantage | $38,6503 | $57,3503 | $94,7002 | $106,7002 | $150,6002 | |
| 1 Earned income is W-2 compensation net of deduction for employer plan contribution, | ||||||
| or Self-employment income net of deduction for 50% of FICA and plan contribution. | ||||||
| 2 Combination Mini(k) and Defined Benefit Plans. Assumptions: GA94 Mortality, | ||||||
| 5.5% Pre-Retirement, 5.5% Post-Retirement; Normal Retirement Age is generally 10 | ||||||
| years or age 62 dependent on age at start of plan. | ||||||
| 3 Requires higher total profit/income than SEP to fund Defined Benefit Pension Plan | ||||||
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We intend the information in this chart as a general resource, not as legal or plan design advice or counsel. If you consider establishing a qualified retirement plan, we suggest that you consult a tax or ERISA professional. ERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from the information provided. 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. |
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© 2002-2006 ERISA Expertise LLC All Rights Reserved |
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View case studies comparing the Mini(k)Plan to SEP, SIMPLE or so-called "Keogh" Plans.
Adding your spouse to your plan enhances the Mini(k) Advantage! Learn more about why you should consider adding your spouse to your plan
Milberg Consulting LLC, a traditional retirement plan consulting and compliance services firm, designed the Mini(k)Plansm to address the unique needs and desires of independent contractors and owners of very small businesses. The Mini(k)Plan provides the same benefits and features as plans previously only available to larger employers.
In comparison to more conventional plans, like SEPs, SIMPLEs or so-called “Keogh” Plans, the Mini(k)Plan provides:
- Higher Contribution Limits
- Increased Tax Deductions
- Greater Benefits at Retirement
Who should consider starting a Mini(k)Plan?
Any individual or very small business owner (described below), age 21 to 65 earning $25,000 to $500,000, who desires a retirement plan that facilitates the maximum tax deductible contribution as permitted by law.
Individuals who are independent contractors (e.g., Real Estate or Mortgage Brokers, Manufacturer’s Representatives, Insurance Agents or Brokers, College or University Teachers or Professors with outside income from books or consulting, Golf Professionals who are not club employees, “Hospital-based” Physicians who are not hospital employees)
Any very small businesses owner with no employees or employees who work less than 1,000 hours per year (owner or shareholder in a C or S corporation, Sole Proprietor, Partnership, LLC, or LLP).
Any very small businesses with 1-5 employees or employees who work more than 1,000 hours per year.
- Consolidate your retirement plans and IRAs into one account
- Purchase Life Insurance using pre-tax dollars
- Borrow from your plan free of tax or penalties
- Change the contribution level yearly (within plan limits)
- Receive tax credits for plan start-up costs (certain conditions apply)
- Invest contributions without restrictions (as permitted by law)
- Add Your Spouse to increase contributions to your plan
- Preclude employees from plan participation
- Higher Contribution Limits
- Increased Tax Deductions
- Greater Benefits at Retirement
Roth 401(k) Provides Planning Opportunities for Plan Participants
Milberg Consulting's ERISA Expertise services developed tools and technology to help plan sponsors determine the viability of adding this new plan feature to a new or existing plan starting January 1, 2006. These tools also assist planning professionals to illustrate how the Roth 401(k) impacts retirement and estate planning for all plan participants, regardless of their level of income or tax bracket. To learn more, go to: www.roth401kinfo.com
What's the Bottom Line on Who Should Consider the Roth 401(k)?
Now that the Roth 401(k) can be added to your new or existing plan, employer/plan sponsors and their advisors must:
ü Understand the rules;
ü Modify all plan forms;
ü Ensure that third party administration (compliance), payroll, and investment vendor systems can accommodate the administrative, recordkeeping and reporting issues unique to the Roth feature;
ü Prepare formal plan modifications and disclosure to participants; and
ü Conduct meetings and/or provide written communications with a clear understanding of...
Who Should Consider the Roth 401(k) Option?
Featured Case Study
Contribute 100% of Spouse Compensation!
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Employer Information
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Pay spouse $49,000 and contribute $49,000! |
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$41,750 more with the Mini(k) in 2005! |
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Background Prior to 2002, the spouse
was not compensated
due to the 15.3% cost
associated with the Social Security and Medicare taxes (FICA), and a
previously repealed pension law that limited plan contributions if a
spouse was included in the plan.
The physician typically receives a bonus at
year-end
The spouse income and the additional pension expense mitigate the need
for a taxable bonus and dramatically increases the retirement benefit
for the physician's family.
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Plan Design Analysis
Prior to 2002, the employer Profit Sharing Plan contribution deduction limit was 15% of eligible compensation, the individual plan contribution allocation limit was the lesser of 25% of compensation or $35,000 and the compensation limit considered in determining the employer maximum deduction and the individual contribution allocation was $170,000. Spouses working for family owned businesses were oftentimes not compensated due to the 15.3% cost associated with the Social Security and Medicare taxes (FICA), and a previously repealed pension law that limited plan contributions if a spouse was included in the plan.
Starting in 2002, the revised pension law provides the following:
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An employer has the discretion to contribute and deduct from 0-25% of eligible employee compensation to a Profit Sharing Plan.
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The individual compensation limit increases to $200,000 ($220,000 in 2006).
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The individual contribution allocation limit increases to the lesser of 100% of compensation or $40,000 ($44,000 in 2005).
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The 100% of compensation or $15,000 (2005 limit) individual 401(k) contribution limit is not considered in determining the employer 25% deduction limit.
The $5,000 (2006 limit) 401(k) "Catch-up" contribution for the physician and spouse is not considered in applying the $44,000 (2006 limit) individual allocation limit or the 25% employer deduction limit.
Adding Spouse to plan FICA Tax analysis for this Case Study (
article does not consider spouse's age or "catch-up")
Closing Comments
A SEP or SIMPLE plan is traditionally the appropriate plan type for an independent contractor (self-employed individual). While these plan types typically do not permit the business owner to contribute the law's maximum deductible contribution, they do not require formal plan documents, governmental reporting and disclosure and the additional cost for professional services typically associated with these requirements.
The Min(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 for the physician, the Mini(k) also permits a contribution for the spouse equal to 100% of compensation up to $44,000.
In addition, since the physician and spouse are age 50, the "catch-up" contribution feature permits each of them to contribute an additional $5,000 in 2006.
This means that the 50+ year old physician and the 50+ year old spouse can contribute a total of $98,000 to the Min(k) in 2006!
Bottom Line: The associated cost to establish and maintain the Min(k) is justified based on the additional taxes you save and the dramatic increase in benefits at retirement.
© 2006 ERISA Expertise LLC All Rights Reserved
We intend the information in this chart as a general resource, not as legal or plan design advice or counsel. If you consider establishing a qualified retirement plan, we suggest that you consult a tax or ERISA professional. ERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from the information provided. 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.
If you are age 21 or 65, earn $25,000 or $500,000+, the Mini(k)Plansm provides higher tax deductible contributions to yield greater benefits at retirement!