1. What are the advantages of having a plan?

Essentially, a plan is established to help retain valuable employees and save taxes. Regarding tax savings, employer contributions are tax-deductible and earnings on them accumulate on a tax-deferred basis. The entire amount is taxable to the employee when it is finally distributed to him.

2. Which type of plan should I consider and how much should I contribute for each participant?

Selecting the best plan depends upon many factors, including how much you want to contribute in total and for each participant. Essentially, there are 2 types of plans: defined contribution plans and defined benefit plans.

A defined contribution plan allows the employer to contribute annually a percentage of the compensation of the participants. In one defined contribution plan, a profit sharing plan, the employer can contribute annually between 0 and 25% of total eligible compensation. An advantage of this type of plan is in the flexibility of contributions allowed. In another defined contribution plan, a money purchase pension plan, the employer MUST contribute annually a fixed percentage (between 0 and 25% but not exceeding $44,000 in 2006, adjusted annually) of each eligible participant's compensation. An advantage of this type of plan is that it allows greater contributions than a profit sharing plan. A 401(k) Plan is a popular type of profit sharing plan. It encourages employees to make their own contributions to the plan, thus enabling employers to their costs.

A defined benefit plan is designed to provide a desired retirement benefit for each participant. The contributions to provide these benefits are actuarially determined annually. This type of plan allows for larger contributions for older employees.

3. What is needed to establish a Plan and how can I accomplish this?

Certain papers, including the plan document, must be completed. Employees must be notified. To set up a plan, you can contact a bank, mutual fund, insurance company or call us at 718-793-9885.

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