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Michael A. Milazzo, CLU, ChFC
Registered Principal
The Meridian Financial Company
3350 Club Villas Dr SE, Unit #1303
Southport, NC 28461
Phone: 631-979-4223
Fax: 910-854-0002
Email: meridian@ae.cadaretgrant.com
Website: www.merfinco.com
November/December 2017
Let's talk business Q&A
Q. My spouse and I run our own business. We do not have any retirement savings. Would setting up a solo 401(k) plan make sense?
A. A solo — or one-participant — 401(k) plan may be a suitable choice for anyone who is self-employed or owns a small business with no employees (other than a spouse) and wants to establish a retirement plan offering potential tax advantages. A solo 401(k) plan allows you to defer up to $18,000* of compensation (or “earned income” if you are self-employed), plus an additional $6,000* if you are age 50 or older. On top of that, your business can make a tax-deductible profit sharing contribution to the plan of up to 25% of your annual compensation (25% of “earned income” if you are self-employed). Total annual
contributions to an individual 401(k) plan account, not counting catch-up contributions, cannot exceed $54,000 (Internal Revenue Code Section 415(c)(1)(A); Notice 2016-62, 10/27/2016).*
Q. I’m thinking of having my company take out a key person life insurance policy on our top software designer. Besides getting her consent, is there anything else we should do?
A. When a successful small business relies heavily on a key individual, the death of that person could be devastating. Key person life insurance is one way to help mitigate the financial fallout. The business pays the policy premiums and is also the beneficiary of the policy. The life insurance payout helps ensure that the business would be able to operate until a replacement for the key person is found. The proceeds of the policy can be used to cover essential business expenses, such as salaries, overhead and loan payments while the business recovers from the loss of the key person. To preserve tax-free treatment of the policy proceeds, you need to take certain steps. In addition to following specific notice and consent procedures, you will need to meet certain other requirements, including filing IRS Form 8925, Report of Employer-Owned Life Insurance Contracts, with your company’s annual income tax return (Internal Revenue Code Section 6039 I; Treasury Regulation Section 1.6039I-1).
* These 2017 dollar limits may be inflation-adjusted for future years.
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Securities and Advisory Services offered through Cadaret, Grant & Co, Inc, a Registered Investment Advisor and Member FINRA/SIPC. The Meridian Financial Company and Cadaret, Grant & Co., Inc. are separate entities. I am registered to sell Securities in the following States: NY, NJ, PA, NC, FL, ID.
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