Profit Sharing Plans and Money Purchase Plans INTRO: There are a myriad of retirement plans available to small businesses and self employed individuals. It’s important to review the various options in order to select the plan most suitable for your business. Bruce Hagan, who has earned the Certified Financial Planner designation and who is with RAI Investments and Corporate Securities Group is with us today to highlight two plans. Q1: Bruce, last time you were with us we discussed SEP and SIMPLE plans. Which plans will we explore today? A1: Both the SEP and SIMPLE plans are prototype plans that are easy to install and inexpensive to administer, and those type plans serve the needs of many small businesses. Today we’ll touch on the Profit-Sharing plan and Money Purchase plan. These are qualified plans and require compliance with ERISA, which means more paperwork. Q2: Why would you want a plan requiring more paperwork? Are there greater advantages to these plans? A2: We have to get into a philosophical discussion with the business owner in setting up a plan. Does the owner want to maximize the benefit for the employees and emphasize the plan as part of their total compensation or does the owner want to use the plan to maximize the amount he or she can sock away for themselves and limit, as much as possible, what they have to spend on the employees? Once we answer that question we can proceed, and yes, these more complicated plans in some instances can offer greater benefit to the employer. Q3. Let’s briefly highlight these plans. First, the Profit-Sharing plan. Who can set one up? A: Any business or self employed individual. Q: What are the contribution limits? A: A maximum of 15% of net eligible payroll, with a limit of $24,000 per individual. Q: What are the key advantages? A: The owner can vary the contributions from year to year. Also, the contribution allocation can be adjusted- it can be age-weighted or tiered to favor owners or key employees. Q4: How about the Money Purchase plan. Who can set this up? A: Again, any business or self employed individual. Q: Contribution limits? A: The individual limit is the lesser of 25% or $30,000. Q: Key advantages? A: The very high limits of contributions.But the real beauty of these plans is they can be combined. The owner could agree to say a 10% mandatory contribution each year through a money purchase plan and a discretionary contribution of up to 15% through a profit sharing plan . This would allow the owner to maximize contributions in good years and scale back in lean years. Q5: It sounds like there are many possibilities and certainly it requires some effort to make the right choice. A5: Yes, but the benefits can be enormous. Make sure you’re working with a knowledgeable advisor. Almost since the beginning of the stock market there has been a debate over which is the more effective strategy, active trading of stocks or buying and holding for the long term. Recently the results of an extensive study have shed some light on investment decisions and the psychology behind them. Bruce Hagan, certified financial planner with RAI Investments and Corporate Securities Group is with us to share those findings. The discussion offered above and in the movie should not be considered an endorsement by Florida State University. They are offered in the educational sense of providing thought-provoking information for our Web audience. Copyright shared with Florida News Channel (FNC), all rights reserved. Broadcast 7/23/99