Retirement Plans

Maximum Pension Limits for 2021


Many employee benefits are subject to annual dollar limits that are occasionally increased due to inflation. The Internal Revenue Service (IRS) recently announced cost-of-living adjustments to the annual dollar limits for various welfare and retirement plan limits for 2021. Most of the limits will remain the same, but some of the limits will increase effective January 1, 2021.

The following are some important limits in effect for 2021:

  • Maximum compensation for plan purposes is $290,000
  • Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $19,166.67 with an annual benefit $230,000
  • Highly Compensated Employee compensation $130,000+
  • Maximum Defined Contribution / Profit Sharing Contribution $58,000
  • Maximum SEP Contribution $58,000
  • Maximum 401(k) Contribution $19,500. Catch-up Contribution for age 50 and over $6,500
  • Maximum SIMPLE Contribution $13,500

Plan Ahead

Employers should update their benefit plan designs with these new limits, and make sure that their plan will reflect the new 2021 limits. Employers may also want to communicate the new benefit plan limits to their employees.

Click here to read the full IRS announcement.

Retirement Plans

Pension Dates to Remember for 2020

Pensions have key dates for filing and disclosures that a plan trustee should be aware of. See below for a list of those key pension dates.

2018 Pension Dates

Retirement Plans

5 Reasons to have a Qualified Retirement Plan – Even If You are a Sole Proprietor

You are a successful business owner. You put a lot of hard work into building your business, and you are finally reaping the benefits. However, there may come a time when you’ll want to step back and triumphantly wash your hands of the business. How do you intend to plan for your financial needs in retirement? 

Many business owners plan on using the sale of their business to fund their retirement. However, they usually don’t take into consideration the additional costs associated with the sale of a business. Expenses such as tax liabilities and brokers’ fees can eat away at the funds you planned on using in your retirement.

Having a qualified retirement plan through your business can help you provide for your retirement.  In addition, it can potentially save you thousands in tax liabilities and benefit both your business and the people who work for it—even if you’re the only one. 

Are these plans the right choice for your business? Before answering this question and looking at potential options, let’s define what it means to have a qualified retirement plan. 

What is a Qualified Employee Retirement Plan?

A qualified retirement plan is one that meets the criteria set forth in section 410(a) of the US federal tax code and the guidelines established by the Employee Retirement Income Security Act (ERISA). These guidelines were established in the 1970s in order to secure workers’ retirement income.

Many companies offer non-qualified plans as part of their total benefits package in the form of deferred compensation or executive bonuses, but these programs have their drawbacks. Contributions to these plans are taxed before they are deposited, reducing the overall amount you have to save.

In contrast, contributions to a qualified retirement plan may be tax-deductible by the employer.  In addition, the contributions are not taxable to the employee when made and grow tax-free until withdrawal, when they are taxed to the employee.  In order to be a qualified retirement plan, a plan must comply with the rules set forth in section 401(a) of the Internal Revenue Code.

Any company can qualify to offer some type of qualified retirement plan. The most common of these plans for single-employee businesses are defined-contribution plans, generally because business owners assume this is their best option. 

Under a defined contribution plan, an employer makes a certain contribution for its employees, and the retirement benefit depends upon the performance of the plan’s investments. The employees are not guaranteed a specific benefit. The most well-known type of defined-contribution plan is the 401(k) plan, which allows employees to make pre-tax contributions to the plan. Often an employer will match a portion of the employees’ contributions.

Despite the popularity of defined contribution plans, they’re not always the best option for single owner businesses—especially for those with no other employees, a high income, and a desire to save a lot on an ongoing basis. For this kind of business, a defined benefit plan could be the best option.

Before we discuss the five main reasons why you should have a qualified retirement plan, you need to understand the types of plans that are available to you.

What Is a Defined Benefit Plan?

A defined benefit plan is a qualified retirement plan that defines the benefit to be paid to an employee after retirement.  The employer is then required to make contributions to the plan in an amount sufficient to fund the employee’s retirement benefit. Contributions may vary from year to year.  This is different than a defined contribution plan where the annual contribution is determined by formula, but the amount of the benefit may vary depending upon investment performance.

There are limits to how much an employer can contribute to a defined benefit plan.  These limits are determined based on the ages of the employer’s employees, expected investment returns, and the overall benefit to be paid by the plan at retirement. However, a defined benefit plan has higher contribution limits than a defined contribution plan. A defined benefit plan is ideal for small businesses with few employees looking to maximize their annual contributions and retirement benefits.

Now that we’ve covered the basics, let’s explore the five reasons you need a qualified retirement plan.

Reason #1: Tax Advantage

One of the main benefits of offering a qualified retirement plan is the potential tax savings. For many business owners, the idea that they’re obligated to make annual contributions to a qualified retirement plan is a turn-off. It’s a major commitment of funds. 

However, many contributions to qualified retirement plans are tax-deductible. Whatever contribution you make annually to a qualified plan can possibly be written off, reducing your business’s overall tax burden. This is one reason that plans like 401(k) plans are popular, but it also goes for defined benefit retirement plans like pensions. 

In addition, an employee does not pay income taxes on the contribution until distribution of his benefit after retirement. This means that you, as a business owner, can take advantage of two tax savings, while managing to save sufficient funds for a comfortable retirement.

Reason #2: Attract Top Talent

If you’re looking to hire some help with your business, offering a retirement plan for employees will attract high-quality talent to your organization and give them an extra incentive to stick around.

Larger companies that don’t offer qualified retirement plans appear lackluster to potential workers because most major companies do, in fact, offer some kind of plan. On the other hand, for small businesses, a tremendous opportunity exists to elevate themselves above the competition by offering something that many smaller firms don’t.

No matter the size of your business or firm, offering retirement solutions and pension plans can make sure you have only the best talent working for you.

Reason #3: Your Employees Need It

As an employer, you already do a tremendous service to the economy by providing needed goods and services and creating jobs. You can add to that service even further by helping to solve the retirement issue many people face—just give them a concrete solution to the issue.

According to a report by the Center for Financial Services Innovation, 42% of Americans aren’t saving anything at all for retirement. If more employers offered qualified, tax-deductible plans, it’s safe to assume that more people would save for retirement.

Reason #4: You Need It

As a business owner, you need retirement savings just as much as your employees do. When you offer a qualified retirement plan through your business, you can enroll as well. The retirement crisis is not just happening among workers. Somewhere around half of all small business owners only save 10% of their income for retirement. One out of four doesn’t save anything at all.

Without an established retirement plan in place, business owners are generally faced with one option: sell the business to fund retirement. This tactic comes with a lot of uncertainties, including the possibility of a lower-than-expected asking price, or having tax burdens eat into your nest egg. Without a plan, you will be under-prepared at a point when there won’t be much time to act otherwise.

Reason #5: You Can Save a Lot

While qualified retirement plans may seem pricey to set up and maintain, they come with the benefit of high limits to contributions. Individual business owners making more than $80,000 a year can save a good portion of those funds in a defined-benefit plan, making these plans ideal for high-income business owners who are nearing retirement.

You can even start saving money by just setting up a plan. For the first three years, businesses get a $500 tax credit in exchange for initiating a plan. 

For business owners, setting up a qualified retirement plan is a crucial step in preparing for a comfortable retirement. Without one, you may not have the resources available to provide for yourself if the unexpected happens. 

Now that you know why you need a qualified retirement plan, it’s time to take the next step. Contact an RMC professional today to determine the best way to set yourself up for the future.

Retirement Plans

Maximum Pension Limits for 2020

Each year, the IRS sets limits for pension plans. These limits are reviewed annually and adjusted for inflation. The following are some important limits in effect for 2020:

  • Maximum compensation for plan purposes is $285,000
  • Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $19,166.67 with an annual benefit $230,000
  • Highly Compensated Employee compensation $130,000+
  • Maximum Defined Contribution / Profit Sharing Contribution $57,000
  • Maximum SEP Contribution $57,000
  • Maximum 401(k) Contribution $19,500. Catch-up Contribution for age 50 and over $6,500
  • Maximum SIMPLE Contribution $13,500

Click here for a PDF copy of the 2020 limits.

Retirement Plans

Powerball and Mega Millions Teach You About Retirement

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Powerball and Mega Millions aren’t retirement plans.

A lot of people look at it this way and it’s kind of a hope.

The reality is that most people want to know what they have in retirement and defined benefit plans can offer that.

Defined benefit plans unlike a defined contribution can give you guaranteed income.

And why that’s important is…

There was a Harvard study about 6 or 7 years ago that came out and said that the average employee if they put the money away in their 401(k) are going to come up about 60% short of their retirement goals.

Let’s face it, business owners aren’t the average employee so it even gets worse for them.

Now I’m not saying get away from the 401(k), they’re great plans.

They offer great reasons and great opportunities.

But if you also offer in or layer in a defined benefit plan, you can offer…

  • A plan that offers the highest tax deduction currently available under the law,
  • You can help diversify reduce or even eliminate some of your stock market risk
  • You can give you guaranteed income you can’t outlive up to $225,000 a year


  • It also offers you the potential to use estate planning tools on a pre-tax basis

Something that you may want to consider offering your business owners

Retirement Plans

Pension Contribution Deductions

As long as a qualified retirement plan is established by the end of an employer’s tax year, contributions to the plan may be deducted in that tax year, even if not actually paid until the following year.  The only requirement is that contributions be made before the due date of the sponsor’s tax return, including extensions.  For example, if a corporation set up a plan by December 31, 2018, it would have until September 16, 2019, to make its contribution to the plan, assuming it filed for an extension.  (September 15, 2019, is a Sunday, so the tax return is due the following Monday.)

It is important to note that a tax return can reflect only one annual contribution, even if larger amounts are actually paid to the plan during a tax year.  This could happen when an employer makes its contribution for the first plan year in September and also makes its contribution for the second plan year in December.  This is an issue particularly relevant to fully-insured 412(e)(3) plans, which are usually established with a current effective date.

To illustrate, assume that a 412(e)(3) plan has an effective date of September 1, 2018.  Also assume that the employer is making quarterly contributions to the plan. If the employer files its tax return on March 15, 2019, it will have made three quarterly payments before the return is filed, and it can deduct those contributions on its 2018 return.  If the employer makes its final quarterly contribution on June 1, 2019, but also makes the entire second year contribution on October 1, 2019, it cannot deduct the entire amount paid on its 2019 tax return.  The deduction is limited to the amount of one annual contribution, and the employer could not deduct the balance of the total payments until the following tax year.

Late winter and early spring is a great time to discuss a retirement plan with your clients.  They are in the process of preparing their 2018 tax returns and may be surprised by how much they have already paid and how much more they may owe.  A retirement plan not only helps your clients secure their retirement, but contributions to the plan may be deductible.  In addition, adopting a plan at the beginning of a year gives your clients the ability to spread out their contributions over the entire year.  To learn more about our retirement planning process, contact RMC today at 239.298.8210 or [email protected].

Retirement Plans

Advantages to a Qualified Retirement Plan

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So some of the advantages to qualified plans are first of all unlike other employee benefit plans, you are not limited based on your business structure.

Yes, it’s an employee benefit plan and what that means is it’s exclusive for businesses and business owners however any type of business structure qualifies…

That’s S-Corps to C-Corps to LLCs…what else, Partnerships, even Sole Proprietors and even better yet a one-person company constitutes a company that is eligible to qualify for this type of plan.

Any size business, if it’s only an owner, employee, there’s no other employees…

No problem!

They’re eligible to qualify for a plan and establish a defined benefit or a defined contribution plan.

They have 10 employees, 100 employees, 1,000 employees…

Every company can establish a defined contribution or a defined benefit plan.

We can also offer designs and structure plans where we can have a defined benefit plan which was a little more meaningful, allows for higher contributions which means potentially more favorable tax treatment.

And we can also add a profit sharing or 401(k) plan component so companies can have 2 types of plans at the same time.

They’re not limited to just one qualified retirement plan.

Retirement Plans

Planning for Retirement: What Retirees Fear and Do Not Understand

Saving for retirement is important. If you start early, save consistently, and regularly monitor your investments, you hope you will have accumulated enough for retirement.  But how much is really enough?

A study in BMO Wealth Management, “The Aging Economy: Improving with Age,” found that many Americans have significant concerns about their retirement years.  They fear that health and financial woes will impact the security of their retirement years or that they will become a burden on their families.

The study found that the primary retirement concern is outliving their savings.  Today, the average life expectancy is 76 for men and 81 for women.  As people live longer, their retirement savings must also last longer.  According to the study, 44% of respondents fear that they will run out of money.  This is a valid concern.  Only 10% of retirees have adequate savings to maintain their pre-retirement lifestyle.  Even those who think they have enough savings may not.  Inflation can erode the value of savings, meaning that you will need more money each year just to maintain the same standard of living. At current trends, inflation will destroy 50% of retirement savings every 22 years.

Another concern is taxes.  A recent survey by the Nationwide Retirement Institute found that 37% of retirees had not considered how taxes would impact their retirement when planning and 70% of retirees either had no knowledge or were only somewhat knowledgeable about taxes. Since retirement income will be reduced by taxes, it is important to understand the impact of taxes, when planning for retirement.

A third concern is medical and long-term care expenses.  Even with Medicare, a retiree will fact increased costs for gap coverage and out-of-pocket expenses.  In addition, long-term care may be needed if either you or your spouse becomes unable to manage everyday activities. Long-term care is expensive, and the cost is growing at a rate faster than inflation. With people living longer, the likelihood of needing long-term care increases. Planning for retirement means that you must account for medical expenses and long-term care in your retirement budget. To illustrate, the Employee Benefit Research Institute determined that a 65 year old couple with median prescription drug expenses would need $296,000 in savings to have a 50% chance of having enough money to cover their health expenses in retirement. If they wanted 90% odds of covering these costs, they would need $400,000 in savings.

How can you overcome these retirement concerns?  Call the RMC Group.  We work with advisors and their clients to develop the most effective retirement program to meet the needs and goals of people planning for retirement.  Our approach to retirement planning is comprehensive and process-driven.  We guide our clients to a better retirement strategy.  We begin with an analysis of the client’s needs and goals. During this process, we examine each factor impacting retirement and will you and your client design, implement and administer the right retirement plan to achieve your client’s financial goals and retirement needs.

To learn more about our pension or retirement planning process, contact RMC today at 239.298.8210 or [email protected].

Retirement Plans

Cash Balance Plans 101

There is a lot of interest in cash balance plans.  Both clients and their advisors have been asking us about cash balance plans. This article will discuss what a cash balance plan is and how it works.

A cash balance plan is a type of defined benefit pension plan.  It is subject to the same minimum and maximum benefit and contribution limitations as any other defined benefit plan.  In addition, a cash balance plan is subject to the same nondiscrimination requirements as any other qualified retirement plan.  A cash balance plan cannot discriminate in favor of owners or highly-compensated employees.

While a cash balance plan is a defined benefit plan, in many ways, it is similar to a profit sharing plan.  Contributions to a cash balance plan are determined as a dollar amount or a percentage of compensation.  In addition, a cash balance plan maintains a theoretical account for the benefit of each participant. A participant’s benefit at retirement is based upon the value of this theoretical account.  A cash balance plan is easy for an employee to understand.  The amount of the contribution made to his or her theoretical account is transparent.  The participant sees the cash going into the plan each year.  In contrast, a traditional type of defined benefit plan defines the benefit at normal retirement age.  For a younger employee, who may not expect to work for one employer until normal retirement age, that may not be a meaningful benefit.

A major advantage of a cash balance plan is that it works well for larger employer groups.  A cash balance plan can segregate employees by class, and the employer can make different levels of contributions to each class.  However, the plan still has to meet the Code’s nondiscrimination tests.  This may result in a higher percentage of the employer’s contribution going to fund the owner’s retirement benefit.  In addition, a cash balance plan is a good option where a business has two or more owners, who receive equal compensation, but one owner is older than the others.  In a traditional defined benefit plan, the employer would have to make a larger contribution for the older owner, because there are fewer years to fund his retirement benefit.  A cash balance plan can be designed so that the contribution is the same for all of the owners, regardless of age.  This eliminates any objection that the younger owners may have.  Whether a cash balance plan is right for a particular employer depends upon the makeup of employer’s census.

A cash balance plan may or may not be the right defined benefit pension plan for your client.  RMC Group will help you determine the best plan design for your client.  A traditional defined benefit plan may be the best option for your client, especially where your client does not want a plan that requires the general testing of a cash balance plan.  If your client is looking to maximize its contribution to a retirement plan, then a fully-insured 412(e)(3) plan may be the answer.

There is still time to establish a retirement plan for 2018. To begin the review and design process, we need a census with the names, dates of birth, dates of hire, hours worked and annual compensation of each employee.  We will also need to know whether your client desires to make a specific contribution to the plan.  CLICK HERE to fill out the census information online.

To get started, contact RMC Group today at 239.298.8210 or visit our website at

Retirement Plans

Maximum Pension Limits for 2019

Each year, the IRS sets limits for pension plans. These limits are reviewed annually and adjusted for inflation. The following are some important limits in effect for 2019:

  • Maximum compensation for plan purposes is $280,000
  • Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $18,750 with an annual benefit $225,000
  • Highly Compensated Employee compensation $125,000+
  • Maximum Defined Contribution / Profit Sharing Contribution $56,000
  • Maximum SEP Contribution $56,000
  • Maximum 401(k) Contribution $19,000. Catch-up Contribution for age 50 and over $6,000
  • Maximum SIMPLE Contribution $13,000

CLICK HERE for a PDF copy of the 2019 limits.