Retirement Plan Options for Small Law Firms

• Jurisdiction: California,United States
• Author: By Sherrie Boutwell & Jim Norman
• Publication year: 2019
• Citation: Vol. 25 No. 4

Retirement Plan Options for Small Law Firms

By Sherrie Boutwell & Jim Norman

Sherrie Boutwell has focused for thirty years in the areas of employee benefits law and ERISA, with an emphasis on retirement and deferred compensation plans. Sherrie has extensive experience and is a highly sought after speaker/writer/ advisor on employee benefits topics. Sherrie takes pride in bringing a practical and down to earth approach to resolving complex benefits issues involving qualified plans, non-qualified plans and health and welfare plans.

James R. Norman, Jr., MBA, QPA, ERPA is an Enrolled Retirement Plan Agent, enrolled to practice before and represent clients with the IRS on all retirement plan matters. Since 1991 he has held a Qualified Pension Administrator designation from the American Society of Pension Professionals and Actuaries. Jim is an expert in the design of 401(k), profit sharing and cash balance pension plans. Jim joined EGPS in 2015. He is also a co-founder of Penchecks, Inc., the largest independent retirement plan benefit distribution processor. Jim was a shareholder and board member for 25 years.

Retirement savings is an important issue for the financial stability of all individuals. While not all individuals recognize this as a priority early in their professional lives, small businesses are wrestling with the best way to facilitate retirement savings for their owners and employees, either out of a need to offer competitive benefits, a sincere concern for their employees' retirement planning, or, in some states such as California, under state-mandated requirements.

For small or solo law firms, the challenges of sponsoring a qualified retirement plan include the costs of establishing a plan,¹ maintaining ongoing compliance, and ongoing costs and fees. The good news is that California employers have many options to address retirement savings accumulation for their employees, including the new CalSavers option:

• Programs based on individual retirement accounts (IRAs), including the CalSavers Retirement Savings Program (CalSavers); and
• Employer-sponsored qualified retirement plans

IRA-BASED OPTIONS

IRAs are simpler to administer than qualified retirement plans because there is no need to manage investments and they do not require the filing of annual reports on Form 5500. However, IRAs have lower dollar limits than qualified retirement plans, more limited creditor protection, and require a third-party custodian. IRAs can be either Roth or non-Roth. Below is a comparison of Roth v. Non-Roth IRAs:

	Non-Roth	Roth
Type of Contributions	Pre-Tax	After-Tax
2019 Dollar Limits	$6,000 per year; ($7,000 if 50+)	$6,000 per year; ($7,000 if 50+)
Distributions	Taxable	Non-taxable distribution of contributions and earnings (first distribution must be at least 5 years after the first contribution)
Age Limit	Under age 70 ½	No age limit
2019 Income Limit	None	$137,000 (single) (phased out beginning at $122,000); $203,000 (married, filing jointly) (phased out beginning at $193,000)
Required Minimum Distributions	Apply	None during participant or beneficiary's lifetime
Penalties/ Taxation on Distributions	Distributions subject to income tax, contributions can be withdrawn without 10% penalty after age 59 ½	Contributions can be withdrawn at any time tax-free and penalty-free. Earnings may be distributed tax-free and penalty-free after the 5-year rule and age 59 ½

[Page 20]

There are several...