Chicago Sun-Times: All posts by Forbes Advisor2020-08-18T14:22:30-05:00https://chicago.suntimes.com/authors/forbes-advisor/rss2020-08-18T14:22:30-05:002020-10-21T16:10:31-05:00Economic Injury Disaster Loans are back: A renewed lifeline for small businesses
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<div class="Figure-content"><figcaption class="Figure-caption"><p>Legacy Toys Store Manager Jeff Kasper sorts through shipping boxes at the store in the Mall of America on June 16, 2020 in Bloomington, Minnesota. - The US economy continues to bleed fresh jobs in the aftermath of COVID-19 shutdowns, even as it reopens and as the Paycheck Protection Program (PPP) and other federal initiatives mitigate some of the downturn’s harshest impacts. Legacy Toys has used its PPP loan to build out an e-commerce business from its seven stores in Minnesota and North Dakota that now see “skyrocketing” demand for curbside pickup from reopened stores, said owner Brad Ruoho. But Legacy, which obtained a $160,000 PPP loan, still has only rehired 35 of 75 staff members. The malls are operating at reduced hours, which means the stores require fewer workers, Ruoho said.</p></figcaption><span class="line"></span><div class="Figure-credit"><p>Photo by KEREM YUCEL/AFP via Getty Images</p></div></div>
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<p>The U.S. Small Business Administration resumed taking applications for low-interest Economic Injury Disaster Loans and EIDL Advance grants. </p><p>The government had been limiting applications since April 16 to agricultural businesses, which were not previously permitted to apply. </p><p>“The SBA is strongly committed to working around the clock, providing dedicated emergency assistance to the small businesses and nonprofits that are facing economic disruption due to the COVID-19 impact,” SBA administrator Jovita Carranza said in a statement. </p><div class="RichTextSidebarModule Enhancement" data-module data-align-floatRight><a class="AnchorLink" id="module-190000" name="module-190000"></a>
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</div><p></p><h3>What is an EIDL loan?</h3><p>Unlike <a class="Link" href="https://www.forbes.com/advisor/loans/heres-what-you-can-do-now-to-ensure-paycheck-protection-program-loan-forgiveness/" target="_blank" >Paycheck Protection Program (PPP) loans</a>, which were created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, EIDL loans have long been a part of the SBA’s toolkit to help provide economic assistance during times of disaster. </p><p>These low-interest loans were intended to give monetary aid to businesses who qualify. </p><p>Since the onset of the coronavirus, the federal government has adjusted eligibility guidelines to better serve those affected by the pandemic. Sole proprietors, freelancers and independent contractors are among the newly eligible groups for EIDLs. </p><p>Similar to a PPP loan, EIDL loans provide funds for industries struggling to stay afloat in the wake of the coronavirus or any other qualifying disaster. </p><p>An EIDL loan can be used to cover payroll and inventory, pay debt or any other business-related expenses. </p><p>The interest rate on these loans is 3.75% for small businesses and 2.75% for nonprofits. You can take up to 30 years to repay your loan, with the first payment deferred for one year. </p><p>On the other hand, PPP loans not eligible for forgiveness are subject to 1% interest and must be repaid within five years, <a class="Link" href="https://www.forbes.com/sites/advisor/2020/06/11/cant-meet-ppp-spending-rules-you-may-win-partial-loan-forgiveness/?utm_source=synd&utm_medium=rss&utm_campaign=cst" target="_blank" >according to the latest guidelines.</a></p><h3>EIDL grants available for up to $10,000</h3><p>If you applied for an EIDL loan, you were also able to apply for an EIDL Advance, which is a grant from the SBA of $1,000 per employee, up to a maximum of 10 employees and $10,000. </p><p>You could apply for and receive an EIDL Advance even if your EIDL loan application is not approved. And, unlike other pandemic-related relief programs, which left many applicants unsure of their status, EIDL Advance loans are supposed to be disbursed within a few days of approval. </p><p>The EIDL Advance program concluded on July 11 after disbursing the entire $20 billion allocated by Congress.</p><p>Still, nearly all of the U.S. government-backed programs to provide economic relief have been plagued with delays due to demand, including the PPP program, which <a class="Link" href="https://www.forbes.com/sites/advisor/2020/04/16/the-paycheck-protection-program-ran-out-of-funding-whats-next-for-small-business-owners/#49606d287440" target="_blank" >ran out of its first round of funding</a> in just 13 days.</p><p>Although <a class="Link" href="https://www.forbes.com/sites/advisor/2020/06/05/president-trump-signs-law-easing-ppp-loan-rules-6-things-to-know/#2bf0b1ba3cb3" target="_blank" >PPP loan forgiveness rules have been relaxed</a> after sharp criticism from businesses, a PPP loan recipient still has to fill out an application proving how the funds were used. </p><p>Even though the SBA recently announced a new “EZ Forgiveness Application” intended to streamline the process, an EIDL Advance doesn’t have any post-disbursement requirement, which could make it more appealing to some. </p><p>As of July 3, more than $134 billion in EIDL loans have been approved. </p><h3>How does an EIDL work with the other available programs?</h3><p>Although there are a number of programs that provide financial assistance to small businesses, it can be dizzying to keep up-to-date on the most recent rules and guidelines. </p><p>Here are some things to keep in mind if you haven’t yet applied for any assistance:<br></p><ul><li id="4cNFYt">You can <a class="Link" href="https://www.forbes.com/advisor/loans/which-banks-are-accepting-paycheck-protection-program-loan-applications/?utm_source=synd&utm_medium=rss&utm_campaign=cst" target="_blank" >apply for a PPP loan </a>and an EIDL loan and be approved for both as long as the funds are used for different purposes. PPP loans are primarily intended to maintain payroll and help keep your staff employed; EIDL loans can be used for a wider range of expenses.</li><li id="uzsEJ4">PPP loans can be up to $10 million, EIDL loans are reportedly capped due to demand at $150,000 or less, according to several reports. The SBA website, however, lists the maximum loan amount at $2 million.</li><li id="kFKDus">Know that if you did receive an EIDL Advance and you’re also approved for the PPP, the amount of the EIDL Advance will be deducted from any loan forgiveness amount on your PPP. </li><li id="T4SD6B">You have until December 31 to apply for an EIDL loan under the expanded criteria put in place due to the pandemic. The last day to apply for the PPP was August 8.</li></ul><div class="RelatedList Enhancement" data-module data-align-center>
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https://chicago.suntimes.com/2020/8/13/21364042/economic-injury-disaster-loans-are-back-renewed-lifeline-for-small-businesses-covid-19-pandemicForbes Advisor2020-08-18T14:22:14-05:002020-08-18T14:12:59-05:00What is a Simplified Employee Pension IRA?
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<img class="Image" alt="Secretary Mnuchin Testifies In Senate Hearing On CARES Act Implementation" srcset="https://cst.brightspotcdn.com/dims4/default/8fb1df6/2147483647/strip/true/crop/5698x3198+0+301/resize/490x275!/quality/90/?url=https%3A%2F%2Fcdn.vox-cdn.com%2Fthumbor%2F1pGvD_pq5tHDqbTGAFmNpxlEQJ4%3D%2F0x0%3A5698x3799%2F5698x3799%2Ffilters%3Afocal%282922x1078%3A2923x1079%29%2Fcdn.vox-cdn.com%2Fuploads%2Fchorus_asset%2Ffile%2F21728586%2F1219096685.jpg.jpg 1x,https://cst.brightspotcdn.com/dims4/default/e447a16/2147483647/strip/true/crop/5698x3198+0+301/resize/980x550!/quality/90/?url=https%3A%2F%2Fcdn.vox-cdn.com%2Fthumbor%2F1pGvD_pq5tHDqbTGAFmNpxlEQJ4%3D%2F0x0%3A5698x3799%2F5698x3799%2Ffilters%3Afocal%282922x1078%3A2923x1079%29%2Fcdn.vox-cdn.com%2Fuploads%2Fchorus_asset%2Ffile%2F21728586%2F1219096685.jpg.jpg 2x" width="490" height="275"
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<div class="Figure-content"><figcaption class="Figure-caption"><p>U.S. Sen. Susan Collins (R-ME) speaks at a Senate Small Business and Entrepreneurship Committee hearing on June 10, 2020 in Washington, DC. The committee is examining the implementation of the CARES Act, which has handed out billions of dollars of government-backed forgivable loans to small-business owners that keep employees on their payroll.</p></figcaption><span class="line"></span><div class="Figure-credit"><p>Photo by Al-Drago-Pool/Getty Images</p></div></div>
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<p>A Simplified Employee Pension (SEP) plan lets self-employed individuals and small business owners establish individual retirement accounts, called SEP IRAs, for themselves and their employees. </p><p>The SEP IRA works a lot like a <a class="Link" href="https://www.forbes.com/advisor/retirement/traditional-ira/" target="_blank" >traditional IRA</a>, but there are additional rules and benefits you need to understand to decide if this retirement plan is right for your small business.</p><h3>The benefits of SEP IRAs</h3><p>Don’t let the word pension fool you: SEP IRAs are defined contribution retirement plans. </p><p>Think of SEP IRAs as part <a class="Link" href="https://www.forbes.com/advisor/retirement/what-is-401k/" target="_blank" >401(k) plan</a> and part traditional IRA, except employers make contributions to the plan. An SEP IRA offers tax-deferred growth for contributions, and withdrawals are taxed as regular income when employees make withdrawals in retirement.</p><p>SEP IRAs differ from Traditional IRAs in that they offer potentially much higher contribution limits. That’s because an employer’s total contribution limit is much higher than an individual’s traditional IRA contribution limits. </p><div class="RichTextSidebarModule Enhancement" data-module data-align-floatRight><a class="AnchorLink" id="module-eb0000" name="module-eb0000"></a>
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</div><p>Each year employers can contribute up to the lesser of $57,000 or 25% of an employee’s income. Self-employed individuals or employers contributing to their own SEP IRAs can contribute slightly less, after accounting for tax requirements.</p><p>For those who are self-employed, the fact that only employers can contribute may be largely semantic: Ultimately, they’re investing for themselves, whether as “employees” or “employers.” </p><p>Small business owners with employees besides themselves who choose a SEP must open accounts for all eligible employees and contribute the same percentage of compensation to each qualifying employee’s SEP IRA, including their own.</p><p>SEP IRAs give business owners lots of flexibility regarding when they make contributions. You can choose to make multiple contributions a year, or make one big contribution at the end of the year. You can even make contributions between the end of the year and your tax filing date.</p><p>Business owners also get tax deductions for <a class="Link" href="https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps-contributions" target="_blank" >their SEP IRA contributions</a>. The most they can deduct from their business’s tax return is the lesser of their contributions or 25% of compensation.</p><h2><strong>Key features of SEP IRAs</strong></h2><h3>Employee contributions and SEP IRAs</h3><p>Some SEP IRA plans allow employees to make <a class="Link" href="https://www.forbes.com/advisor/retirement/ira-contribution-limits/" target="_blank" >traditional IRA contributions</a> to their SEP IRA account. This reduces the amount the employee may contribute to other IRAs. </p><p>As an individual, you are only allowed to contribute up to $6,000 in 2020 ($7,000 if you are 50 or older) to all IRAs, including traditional, Roth and SEP IRAs.</p><h3>Vesting and SEP IRAs</h3><p>Employer contributions to an employee’s SEP IRA vest immediately, meaning that the employee has ownership of all assets in the account as soon as an employer makes a contribution.</p><p>That said, the rules of IRA withdrawals still apply. </p><p>Workers generally can’t take the money early without paying penalties. If someone tries to withdraw money from a SEP IRA prior to age 59 ½, they’ll owe income taxes on the money as well as a 10% penalty, except under certain circumstances. </p><p>They can, however, roll the funds into another IRA.</p><h3>Loans and SEP IRAs</h3><p>SEP IRAs, unlike 401(k) plans, aren’t permitted to make loans to participants. </p><p>That said, it may be possible to make an early withdrawal from the account without paying a penalty in certain circumstances, including financial hardship, a first home purchase or higher education costs.</p><h3>Who can open a SEP IRA?</h3><p>Any sole proprietor, partnership, corporation or nonprofit organization can set up a SEP IRA, but it’s best suited to sole proprietors and small businesses with just a few employees.</p><p>For a small business, a SEP IRA is a simple, low-cost way to offer retirement benefits to employees. </p><p>For a self-employed person, the plan may allow you to save more for your retirement than a Traditional IRA. To save even more, the self-employed may want to consider a <a class="Link" href="https://www.forbes.com/advisor/retirement/solo-401k/" target="_blank" >Solo 401(k)</a>.</p><h3>Which employees qualify for a SEP IRA?</h3><p>If you set up a SEP IRA plan for your small business, you must include <a class="Link" href="https://www.irs.gov/retirement-plans/sep-fix-it-guide-sep-plan-overview" target="_blank" >all of your employees</a> who are 21 or older, have performed services for the business in at least three of the last five years and have received at least $600 in compensation from your business for the year.</p><p>This includes part-time employees, seasonal employees and any who left the business during the year. You can include workers in your plan who do not meet these requirements, but you don’t have to.</p><p>Some employees may be excluded from a SEP IRA, at an employer’s discretion, including:<br></p><ul><li id="h8GRTp">Employees who are covered by a collective bargaining agreement, if retirement benefits were part of the bargained plan.</li><li id="3KTijI">Nonresident alien employees who didn’t earn any income from you in the U.S.</li><li id="P67IYt">Employees who received less than $600 in compensation during the year or are younger than 21.</li></ul><h3>2020 SEP IRA Contribution Limits</h3><p>Contributions to an employee’s SEP IRA cannot exceed the lesser of either 25% of their compensation or $57,000 in 2020. </p><p>If you are self-employed and making SEP contributions for yourself, slightly different contribution limits apply.</p><p>All SEP contributions must be made in cash and are immediately vested in employee SEP accounts. If you have more than one defined contribution plan for employees, the limits apply to contributions made to all accounts.</p><h3>Calculating your contribution as a self-employed person</h3><p>If you’re self-employed and making SEP IRA contributions on behalf of yourself, the same limits apply as for those with employees, but you’ll calculate the maximum deductible contribution differently. </p><p>Your contribution max is calculated as net profit minus one-half of the self-employment tax and your SEP contribution. This will reduce the <a class="Link" href="https://www.irs.gov/publications/p560#en_US_2019_publink10009068" target="_blank" >percentage</a> of your pre-adjusted salary you can contribute.</p><h3>When and how to contribute to a SEP IRA</h3><p>Employers and sole proprietors can contribute to a SEP IRA annually, but they don’t have to contribute to a SEP IRA every year. </p><p>When revenues are down, they can choose to contribute less to the SEP IRA or not to contribute anything in that tax year at all. There is no additional paperwork required for changes in contribution levels.</p><p>But when employers do contribute, they must contribute equally for all participants, including themselves. This is true even if an employee died or left the company before they contributed to the plan as long as they performed work for the business during the year.</p><p>Contributions for a tax year must be made by that year’s federal tax filing deadline. If you file for an extension on your taxes, you must contribute before the end of your extension period.</p><h3>What are the SEP IRA withdrawal rules?</h3><p>When you withdraw from your SEP IRA in retirement, you pay taxes on any withdrawals based on your current income tax bracket. Money can be used penalty-free for any purpose after age 59 ½, the federal retirement age.</p><h3>Early SEP IRA withdrawal rules</h3><p>Except under certain circumstances, if you withdraw money from a SEP IRA before age 59 ½, you’ll owe income tax on the entire amount withdrawn, as well as a 10% early withdrawal penalty, unless you qualify for an exception.</p><h3>Exceptions to the SEP IRA early withdrawal penalty</h3><p>The 10% early withdrawal penalty can be avoided if the money is taken out for any of the following reasons:<br></p><ul><li id="7Hjufl">First-time home purchase (up to $10,000)</li><li id="mznv1y">Birth or adoption of a child (up to $5,000)</li><li id="g0nzhF">Qualified higher education expenses</li><li id="qV1ETN">Qualified medical expenses</li><li id="UAalk3">Health insurance premiums when unemployed</li><li id="YSJYxi">Substantially equal payments</li><li id="bfnrse">Withdrawals by a beneficiary, after the account holder has died</li></ul><p>Keep in mind that you (or your beneficiary) will still owe income tax on any withdrawals from your SEP IRA.</p><p>As part of the <a class="Link" href="https://www.forbes.com/advisor/retirement/cares-act-retirement-account-rules-covid-19/" target="_blank" >2020 CARES Act</a>, you can withdraw up to $100,000 from your SEP IRA penalty free if you face coronavirus-related hardship. </p><p>Any amount of that withdrawal that you redeposit in your SEP-IRA or another retirement account within three years will also escape income taxes, although you may have to file an amended return.</p><h3>How do I open a SEP IRA?</h3><p>Opening a SEP IRA requires that you put in place a written agreement to provide benefits to all eligible employees. </p><p>The agreement must contain the name of the employer, what’s required for employee participation, the signature of a responsible official and a definite allocation formula. Many brokerages require you to have an Employer Identification Number (EIN) to open a SEP IRA.</p><p>You may be able to use the IRS’s model SEP plan document, <a class="Link" href="https://www.irs.gov/pub/irs-pdf/f5305sep.pdf" target="_blank" >Form 5305-SEP</a>, unless one of the following situations applies:<br></p><ul><li id="luRkhs">You maintain any other qualified plan, like a 401(k) or SIMPLE IRA</li><li id="BCvRxn">You use the services of leased employees</li><li id="1RM3th">You want to use a non-calendar plan year</li><li id="NKxIzR">You want to use an allocation formula that takes into account Social Security contributions you made for your employees</li></ul><p>You may set up a SEP IRA with a bank, insurance company, mutual fund company or other financial institution that offers IRA accounts. You must apply to open the SEP, and each eligible employee must also submit an application.</p><p>A SEP can be established any time before a company’s annual tax filing deadline and can be used to make contributions for that tax year. </p><p>For instance, if a sole proprietor’s tax deadline is April 15, 2021, to file taxes for tax year 2020, they may establish a SEP IRA anytime prior to that date and make 2020 contributions.</p><p>If there are eligible employees, employers must provide them with disclosures about the plan and allow them to enroll. This is true on a rolling basis: Once an employee becomes eligible, they must be informed. </p><p>Each employee should receive a copy of the agreement containing participation rules and a description of how employer contributions may be made to the IRA, along with a copy of the completed Form 5305-SEP and a yearly statement showing any contributions to the plan.</p><h3>Investment options for SEP IRAs</h3><p>Funds saved in a SEP IRA may be invested in any security, including <a class="Link" href="https://www.forbes.com/advisor/investing/what-are-mutual-funds/" target="_blank" >mutual funds</a> <a class="Link" href="https://www.forbes.com/advisor/investing/what-are-etfs/" target="_blank" >exchange-traded funds (ETFs)</a> and individual stocks and bonds. </p><p>SEP IRAs generally offer more investment options than 401(k)s or 403(b)s, but the options available for any given SEP IRA depend entirely on the account provider.</p><h3>The bottom line</h3><p>The ability to save pre-tax money for retirement — and create a retirement benefits plan for your small business’s employees — is appealing to many sole proprietors and small business owners.</p><p>SEP IRAs allow self-employed people and small businesses with few employees to save a lot for retirement easily. </p><p>However, their inability to allow employee contributions and the requirement that business owners contribute the same percentage for all eligible employees, including themselves, may make SEP IRAs less appealing than SIMPLE IRAs.</p><div class="RelatedList Enhancement" data-module data-align-center>
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