Author: Suzanne Watson

My mother, Caroline, is 67 years old and will soon amicably divorce my stepfather. Currently, she receives spousal Social Security benefits and shares his pension payments. How will this change, if at all, when the divorce becomes final?

If your mother’s marriage lasted 10 years or longer, she can continue to receive benefits on her ex-spouse’s record. As a spouse, she gets a combination of benefits equaling the higher spouse’s benefit. So, if her benefits as a spouse are higher than her own retirement benefits, she gets the spousal benefits, minus any extra credits for her spouse’s delayed retirement.

This benefit as a divorced spouse is equal to one-half of the ex-spouse’s full retirement amount, if payments begin at normal retirement age. In other words, your mother should continue to receive the same Social Security benefits as long as she does not remarry.

Most states consider pensions a joint asset of both spouses and typically divide them with other assets upon finalization of the divorce. However, your state’s court will make the final determination, so make sure your mother hires an experienced divorce attorney.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

When companies offer employees deferred compensation in the form of “qualified” retirement plans, including 401(k) and SIMPLE plans, they offer tax-advantaged contributions and potential earnings. “Non-qualified” deferred compensation (NQDC) plans don’t typically include the same tax advantages, yet they help companies compete for and retain top employees.

Bang For The Buck

Companies use NQDC plans to help employees, typically those who are highly paid and most important, put more money away for retirement than allowed by qualified plans. While large companies historically have offered these plans, smaller firms are finding them useful, too.

Structure Matters

There are a few ways to structure these plans, which are governed by signed agreements between participating employees and employers. One way doesn’t involve extra compensation, but allows high-earning employees to defer part of their compensation in return for this money, plus interest, at a later date. Other plans may offer extra compensation or bonuses to valued employees, but only as deferred compensation.

Some agreements let employees put this money in company stock or different investments, while others are simply a promise by the employer to pay a certain amount at a later date. There are pros and cons to each approach, including the potential of investments or the company performing badly and jeopardizing deferred money.

Talk To The Experts

NQDC is listed as a liability on the company’s ledger, so companies might consider buying life insurance or annuities for key employees, reducing their liability while keeping the benefit the same. Either way, the agreement can contractually obligate recipients to remain with the company for a set period of time to receive the deferred compensation.

Talk to your tax and legal professionals before entering into an NQDC agreement.

A one-participant 401(k) plan, often known as a solo or self-directed 401(k), is generally a good retirement plan option for solo entrepreneurs. Although this plan typically has the same requirements as any 401(k) plan, providers may offer solo retirement programs that are less complex and more cost-friendly.

Big Savings

One advantage of a solo 401(k) plan, compared to a SIMPLE plan or IRA, is the larger contribution limit. You may contribute up to $18,500 annually (and an extra $6,000 if age 50 or older) as an employee, up to 100% of earned income, plus make an additional contribution as the employer. If you’re self-employed, “earned income” is defined as net earnings from self-employment after deducting one-half of your self-employment tax and contributions.

These 401(k) plans also feature tax-deferred contributions and potential growth, and may particularly provide a good retirement solution for higher-income individuals.

As summer approaches, many businesses begin to plan next year’s employee benefit menu. A retirement plan is typically among employees’ most desired benefits, and one of the simplest, most cost-friendly ways to provide one is the Savings Incentive Match PLan for Employees IRA – better known as a SIMPLE IRA plan.

The Basics

Small businesses with 100 or fewer employees that don’t offer another retirement plan generally may establish a SIMPLE IRA. This retirement plan allows employee contributions of up to $12,500 annually, indexed to inflation, and a $3,000 catch-up contribution for employees age 50 and older.

Employer Contributions

Employers may make mandatory contributions to a SIMPLE IRA in one of two ways. The first is to match each employee’s contribution dollar for dollar up to 3% of each employee’s compensation. This option allows employers to reduce matching contributions to less than 3% but at least 1% in no more than two out of five years. The second option is to make nonelective contributions of 2% of the employee’s compensation up to the annual compensation limit of $275,000 for 2018. This option requires employers to contribute for all eligible employees, whether or not they contribute to the plan.

Pros And Cons

There are a few caveats that come with a SIMPLE IRA. If you want higher contribution limits or anticipate growing your company quickly (above 100 employees), other options may prove better. Also, employees younger than age 59 1/2 who make early withdrawals during the first two years of participation in the plan may be subject to an additional tax of up to 25% of the withdrawal, with some exceptions.

However, a SIMPLE IRA is a good retirement plan for a newer company, due to startup and operating costs that are generally less than for a traditional 401(k) and ease of administration. Talk to us to learn more.

A Simple Way To Save – A retirement plan is among employees’ most desired benefits.

Going It Alone Individual – Business – A solo or self-directed 401(k) is a good plan for solo entrepreneurs.

Benefit Now, Pay Later – “Qualified” versus “non-qualified” plans.

Profile – How do Social Security payments change with divorce?

5 Estate Planning Musts – basic estate planning concerns.

Overcoming Disability Business – Address the possibility of an owner’s major disability.

Questions and Answers

Short Bits