What is the Best Retirement Plan for a Business Owner?

Key Takeaways:

- Most business owners offer a retirement plan so they can put their own money away for their own retirement, retain key employees and offer competitive benefits when competing for talent.

- A well designed retirement plan can be a significant piece of attracting and retaining talented employees.

- A SEP IRA allows a closely held business owner the ability to make tax-deferred contributions up to $57,000 (2020 limit) or 25% of compensation. A 401(k) can reach similar tax deferred contribution limits, but contributions will be made in “pieces”, i.e. the 401k contribution, the company match and profit sharing would be the 3 components needed to achieve that high of a contribution amount.

- A 401k is regulated by the Department of Labor (DOL) and the Employee Retirement Income Security Act of 1974 (ERISA) and requires that all employees are treated equally.

- A Non-Qualified Deferred Compensation plan allows you to reward specific employees, that is, you can pick which key employees are eligible for the additional compensation.

- Highly compensated business owners or professionals often run into a qualified retirement plan contribution percentage dilemma: the annual limits of their qualified plan would probably result in less money being put away for retirement than what could replace their lifestyle income needs. For example, a professional making $500,000 in annual income only saves a little over 11% of their income even if they max out a profit sharing 401k plan.

- There are plan options available for folks in this situation. One option is referred to as a “Section 162” bonus that is often used for key employees and is sometimes funded by cash value life insurance for tax purposes.

- Another option is setting up a Defined Benefit Plan. Small business owners can take a look at a type of a Defined Benefit Plan called a Cash Balance Plan. You can learn more about Defined Benefit and Cash Balance Plans by listening to Episode 9 of our Every Dollar Counts podcast.

- For sole proprietors just starting out and not having the ability to put significant dollars away for retirement planning, there are two other options: a Traditional IRA and a Roth IRA. Both have $6000 contribution limit (2020) with a $1000 catch up after age 50. A Traditional IRA has pre-tax contributions with tax deferred growth; a Roth IRA has post-tax contributions with tax free growth. Note that there are income limits with a Roth.

Action Items: Modern technology has made most retirement plan options available in a “Do-it-yourself” manner, but as with most things, the more complex the plan and the business owner’s situation, the more value professional guidance brings to the table. You can reach out to Gulf Coast Financial Advisors to set up a no-cost, no-obligation discussion about your particular needs by call 251-327-2124 or emailing jnull@gulfcoastfa.com

Show Links:

https://gulfcoastfa.com/

https://pciawealth.com/

https://qualifiedplanadvisors.com/

https://fitrusts.com/

https://everydollarcounts.libsyn.com/

http://jaystubbs.com/

https://www.firstprotective.com/

https://www.deepfriedstudios.com/

https://www.slothracerband.com/

Resources: Gulf Coast Financial Advisors

Prime Capital Investment Advisors

Qualified Plan Advisors

Financial Fitness for Life

First Protective

Josh and Jay welcome Will Steih back to the studio to dive deep into the different types of retirement plans available to Gulf Coast area business owners. If you’re a business owner that is looking to sock money away, what are your options? Should you consider a SEP IRA? Or a 401k? What is profit sharing? What is safe harbor? What is the best retirement plan for a business owner? IT DEPENDS! Join us to hear a straight forward conversation about your qualified plan options, plus some tips for those of you looking to save more above and beyond your basic 401k! Key Takeaways: - Most business owners offer a retirement plan so they can put their own money away for their own retirement, retain key employees and offer competitive benefits when competing for talent. - A well designed retirement plan can be a significant piece of attracting and retaining talented employees. - A SEP IRA allows a closely held business owner the ability to make tax-deferred contributions up to $57,000 (2020 limit) or 25% of compensation. A 401(k) can reach similar tax deferred contribution limits, but contributions will be made in “pieces”, i.e. the 401k contribution, the company match and profit sharing would be the 3 components needed to achieve that high of a contribution amount. - A 401k is regulated by the Department of Labor (DOL) and the Employee Retirement Income Security Act of 1974 (ERISA) and requires that all employees are treated equally. - A Non-Qualified Deferred Compensation plan allows you to reward specific employees, that is, you can pick which key employees are eligible for the additional compensation. - Highly compensated business owners or professionals often run into a qualified retirement plan contribution percentage dilemma: the annual limits of their qualified plan would probably result in less money being put away for retirement than what could replace their lifestyle income needs. For example, a professional making $500,000 in annual income only saves a little over 11% of their income even if they max out a profit sharing 401k plan. - There are plan options available for folks in this situation. One option is referred to as a “Section 162” bonus that is often used for key employees and is sometimes funded by cash value life insurance for tax purposes. - Another option is setting up a Defined Benefit Plan. Small business owners can take a look at a type of a Defined Benefit Plan called a Cash Balance Plan. You can learn more about Defined Benefit and Cash Balance Plans by listening to Episode 9 of our Every Dollar Counts podcast. - For sole proprietors just starting out and not having the ability to put significant dollars away for retirement planning, there are two other options: a Traditional IRA and a Roth IRA. Both have $6000 contribution limit (2020) with a $1000 catch up after age 50. A Traditional IRA has pre-tax contributions with tax deferred growth; a Roth IRA has post-tax contributions with tax free growth. Note that there are income limits with a Roth. Action Items: Modern technology has made most retirement plan options available in a “Do-it-yourself” manner, but as with most things, the more complex the plan and the business owner’s situation, the more value professional guidance brings to the table. You can reach out to Gulf Coast Financial Advisors to set up a no-cost, no-obligation discussion about your particular needs by call 251-327-2124 or emailing jnull@gulfcoastfa.com Show Links: https://gulfcoastfa.com/ https://pciawealth.com/ https://qualifiedplanadvisors.com/ https://fitrusts.com/ https://everydollarcounts.libsyn.com/ http://jaystubbs.com/ https://www.firstprotective.com/ https://www.deepfriedstudios.com/ https://www.slothracerband.com/ Resources: Gulf Coast Financial Advisors Prime Capital Investment Advisors Qualified Plan Advisors Financial Fitness for Life First ProtectiveSHOW LESS