1. SEP-IRA vs. Solo 401K (also called: Self-Employed 401K or Individual 401K) vs. Simple IRA Jojo Zhou, Jane Fu, Ying Lin & Anna Li’s SMD team Training only Internal training use only

2. SEP-IRA A Simplified Employer Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self- employed people and small-business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish own separate SEP-IRA; employer contributions made into each eligible employee’s SEP-IRA.

3. SEP-IRA Eligibility: You can establish a SEP-IRA if you: Are a sole proprietor, in a partnership, or a business owner (of either an unincorporated or incorporated business, including Subchapter S corporations); Earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at your full-time job.

4. SEP-IRA Eligible Compensation For common-law employees, compensation is based on W-2 wages. Compensation for sole proprietors is based on Schedule C income and, for partners in a partnership, Schedule K-1 income. An employee's compensation in excess of $250,000 may not be considered for the purposes of making an SEP contribution. Read more: http://www.investopedia.com/university/retire mentplans/sepira/sepira1.asp#ixzz1qTZSOB NVW-2 http://www.investopedia.com/university/retire mentplans/sepira/sepira1.asp#ixzz1qTZSOB NV

5. Contribution flexible (SEP-IRA) No annual contribution required Contribution percentage can very each year, from 0% - 25% of compensation, up to $50,000 per participant for the 2012* All SEP-IRA contributions must be made by the employer, and the same percentage of compensation must be contributed for each eligible employee (based on W-2 wages) including the employer. Use our worksheet to calculate your SEP-IRA contribution.* Use our worksheet to calculate your SEP-IRA contribution Please note: for self-employed (single unincorporated business owner): Quote from IRS publication 560: “The deduction for contribution to your own SEP-IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan.” You are required to use the worksheet on Page 22 of Publication 560 to determine your contribution. The result (allowed maximum contribution) is equal to: (net earning – half self-employment tax) x 20%, which is also equal to: (net earning – half self-employment tax – allowed contribution) x 25%

6. An employer may exclude the following categories of employees from participating in the SEP for the year: Employees covered under a collective bargaining agreement (unionized employees)collective bargaining Employees who are under age 21 Employees who earn less than $550 (for 2011-indexed) for the year Employees who worked less than three of the five preceding years Non-resident aliensNon-resident aliens with no U.S. income SEP-IRA Excludable Employees

7. Tax Advantages of SEP-IRA Tax-deductible contributions Up to 25% of compensation (20% if you are self-employed), as much as $50,000 for the 2012 plan year.*Tax- deferred growth potential Any investment earnings grow tax-deferred until withdrawn. The maximum compensation on which contributions can be based is $250,000 for the 2012 plan year. For self-employed individuals, compensation means earned income (1099).

8. Solo 401K: Who Can Establish Solo 401K is available to self-employed individuals or business owners with no employees other than a spouse(or with part- time employees who work less than 1000 hours per year), including sole proprietors, partnerships, corporations, and "S" corporations (also LLCs and LLPs).

9. Solo 401K (Self employed 401K or Individual 401K) Higher Contribution Limits Solo or Self-Employed 401(k) allows you to make tax-deductible 401(k) salary deferrals to the plan of up to $170,000 for 2012. If you are age 50 or older you can make an additional catch-up salary deferral contribution of $5,500 for 2012. The plan also lets business owners make tax-deductible profit sharing contributions of up to 25% of compensation, up to the annual maximum of $50,000 for the 2012 plan year. Note that the total of salary deferrals and profit sharing contributions cannot exceed $50,000 for 2012.

10. SEP-IRA vs. Solo 401K (examples, age < 50) Earned Income SEP-IRA Solo 401K $100,000$25,000 (=$100,000 x 25%) $41,500 (=$25,000 + $16,500) $245,000 ( > $196,000) $49,000 (=$196,000 x 25%) ($245,000 x 25% = $61,500 > $49,000) $49,000 ($245,000 x 25% = $61,500 > $49,000) 2011 Contribution Limits for Incorporated Business Owner: 2010 Contribution Limits for Unincorporated Business Owner (self-employed): Earned Income SEP-IRA Solo 401K $100,000$18,587 =($100,000 - $7065)x20% $35,087 (=$18,587 + $16,500) $245,000 $45,538 = ($245,000 -$17309) x 20% $49,000 $45,538 + $16,500 = $62,038 > $49,000

12. Simple IRA vs. Simple 401K For both the SIMPLE IRA and the SIMPLE 401(k) plans, eligible employers must have no more than 100 employees who have received at least $5,000 in compensation from the employer for the previous year. Employers cannot maintain any other retirement plan for employees who are eligible to participate in the SIMPLE 401(k). Read more: http://www.investopedia.com/articles/retirement/04/0609 04.asp#ixzz27cnvVxrLSIMPLE IRA http://www.investopedia.com/articles/retirement/04/0609 04.asp#ixzz27cnvVxrL

13. Simple IRA Savings Investment Match Plans for Employees (SIMPLE–IRAs) make it easier for self-employed individuals and small businesses with 100 employees or fewer to offer a tax-advantaged retirement plan, funded by employer contributions and elective employee salary deferrals

14. Eligible Employees To be eligible to participate in the SIMPLE 401(k) plan, employees may be required to perform service for at least one year and reach the age of 21. There is no age requirement for the SIMPLE IRA. Instead, any employee who earned at least $5,000 during any two preceding years and is reasonably expected to earn $5,000 in the current year must be allowed to participate in the plan Read more: http://www.investopedia.com/articles/retireme nt/04/060904.asp#ixzz27coEeCvG http://www.investopedia.com/articles/retireme nt/04/060904.asp#ixzz27coEeCvG

15. Example ABC Company established a SIMPLE for its employees and has elected to make a matching contribution to the plan for the 2011 calendar year. Jane, an employee, is eligible to participate in the plan and receives compensation of $350,000 for the year from the company. Jane has decided to defer the maximum allowable amount of $11,500 to the plan. The amount Jane receives as an employer contribution is determined by the type of SIMPLE that ABC adopted. If ABC Company adopts a SIMPLE IRA, Jane may receive a matching contribution of $10,500 (3% of $350,000). If ABC Company adopts a SIMPLE 401(k), Jane would receive no more than $7,350 as a matching employer contribution. This is because ABC Company may consider no more than $245,000 of Jane's compensation for plan purposes (3% of $245,000). As we stated earlier, the non-elective contribution is subject to the same compensation cap for both plans. Therefore, if ABC Company had elected to make non-elective contributions, Jane's contribution amount would be the same under both plans Read more: http://www.investopedia.com/articles/retirement/04/060904.asp#ixzz27cpbHQDehttp://www.investopedia.com/articles/retirement/04/060904.asp#ixzz27cpbHQDe

16. Notes: Reducing Matching Contributions For the SIMPLE IRA, an employer who elects to make matching contributions may choose to reduce the amount to one that is less than 3% but no less than 1% for two out of every five years. This option is not available for SIMPLE 401(k)s. Read more: http://www.investopedia.com/articles/retirement/04/0609 04.asp#ixzz27cpuwB4U http://www.investopedia.com/articles/retirement/04/0609 04.asp#ixzz27cpuwB4U

17. SEP IRA vs. Solo 401(k) SEP IRA SOLO 401K 1. Contribution limited: $50,000: up to 25% of your net earnings 2. Not catch up contribution 3. Not loan allowed 4. Dead to fund and open: Same as your tax filing deadline: 4/15 or 10/15 with the extension 1. Contribution limited: $50,000 Salary deferrals up to $17,000 catch up contribution $ 5,500 Profit sharing : up 25% of compensation/20% net earnings 2. Can have loan up to $50,000 3. Deadline to open a new plan is Dec. or fiscal year end

18. Simple IRA v.s. SEP IRA SIMPLE IRA SEP IRA 1. Contribution limit: $ 11,500 from net earnings, catch up $ 2500 Match contribution :up to 3% of compensation 1. Contribution limited: $50,000: up to 25% of your net earnings 2. Deadline to fund and open: Same as your tax filing deadline: 4/15 or 10/15 with the extension

19. Company available for SEP-IRA Annuity company: Prudential, AllianzLife, ING, Transamerica IDEX, etc. Mutual funds company: Fidelity, American funds, AIM, etc. ***Solo 401K or Self Employed 401K*** Annuity Co. vs. Mutual Funds Co?

20. MRD(Min. Redemption Distribution)

21. http://personal.fidelity.com/accounts/pdf/se401kbro.pdf Reference: IRS Publication 560 (2011) http://www.schwab.com/public/schwab/home/account_types/small_business_ret irement/individual_401k?cmsid=P-991373&lvl1=home&lvl2=account_types http://personal.fidelity.com/products/retirement/getstart/newacc/keogh.shtml.cvsr

22. Thanks!