Selecting a Retirement Plan made easy:Make the ideal choice with our insights. Selecting the ideal Retirement plan can be very easy with just the right information. There are several retirement plans out there in the market, and each one is more complicated than the other. Selecting the best plan for yourself and your firm is no easy task and it often leads to frustration. To make the task easier, we narrow it down to just two variables that are crucial in the decision making process. These are: Employees: Does your business have employees (Yes/No)? Free Cash Flow: How much money are you looking to put aside in a retirement plan for yourself? Similarly, how much money are you comfortable contributing towards your employee retirement plan?
The table below gives an overview of retirement plans. If you don’t have employees, the following plans based on your cash flow can prove to be the right choice for you – Low Cash Flow: In this situation you can opt for the solo/individual 401(k) plan. Low Cash Flow: Clients can select a 401(k) plan with safe harbor provisions. Self Employed Tax Deductions - Defined Benfit Plans. Hi , The information you have provided is as follows: Three year average income: Participant’s age: A participant with the above mentioned parameters can accumulate (Lump Sum at Retirement Amount) till he reaches an assumed retirement age of (Retirement Age) .
In the first year, a maximum contribution of (Maximum Contribution) can be made to the plan. A plan for 2016 can be incorporated at any time during the year, and within a certain time in 2017. The funding of the defined benefit plan can also happen any time in 2016 and in 2017, but before the company files its tax returns. If you have employees, the IRS mandates you to make available a retirement plan for employees as well. A comprehensive report shall be emailed to you outlining the further steps you need to take in order to get started with a defined benefit plan. Please enter your email address below: Floor Offset Plan - Combination of Defined Benefit and Profit Sharing Plan. Floor Offset Plan A floor offset plan is one of the most advanced pension plan design and involves a defined benefit plan and a profit sharing plan working together.
Who is it ideal for? The floor offset is ideal if: Your business has a lot of free cash flow and are looking to put aside a large sum of money for your own retirement.You are a small to medium sized business (less than 99 employees)There is only a single owner of the business or at least a small number (2-3) partners. So what exactly is this plan design? Let’s set up the background first with the help of an example. Let’s assume you are the owner of a small business with five employees and have decent amount of free cash flow.
Someone just mentioned about a defined benefit plan to you. This is where a floor offset comes in to rescue. The IRS permits segmentation in a defined benefit plan, which basically means assigning different people to different classes based on job title, location etc. Profit Sharing Plans - A small step in the right direction for business owners. Profit sharing plans are a type of defined contribution plans where the employer makes an allocation to the employees and bears no future risk and liability. The allocations are typically a percentage of compensation. There plans were born to eliminate future uncertainty regarding mortality rates and investment returns. There are different types of profit sharing plans and the one feature that separates them is the method in which the monies are allocated. Based on this, profit sharing plans can be classified into two types: Traditional Profit Sharing PlansNew Comparability Profit Sharing Plans Traditional Profit Sharing Plans: In traditional profit sharing plans, all participants receive an equal profit sharing allocation.
Advantage: Mandatory IRS testing may not be required. Disadvantage: The plan allocation cannot be skewed in favor of the owners or key employees. Allocation in a traditional profit sharing plan: Allocation to Owner: $26,500 Allocation to Employees: $9,900. Safe Harbor 401k Plan - Retirement Planning for Business Owners. Safe Harbor 401k Plan A safe harbor 401k plan is an ideal choice for a young business owner who is looking to start small and put aside some money for retirement. A traditional 401k plan allows you to contribute as much as $18,000 and an additional $6,000 if you are above the age of 50. If you have employees, the IRS requires you to provide a 401k plan to your employees so that they can start saving for retirement. In order to ensure that retirement plans are not too skewed in favor of the highly compensated employees, the IRS requires certain compliance testing to be done.
This sticky situation can be bypassed if you implement a safe harbor 401k plan. What is a safe harbor 401k plan? A plan is a safe harbor 401k plan if you agree to make certain minimum contributions to your employees in a retirement plan. Safe Harbor Non-elective plan: In a Safe Harbor Non-Elective plan, you are required to make a contribution equivalent to 3% of W-2 compensation to all eligible employees. Defined Benefit Plan - A leap forward in retirement planning. Why a Defined Benefit Plan Favors Older Participants The Defined Benefit Plan favors older participants for two reasons. First, since older participants are closer to retirement they have fewer years to amass annual contributions and build the required “lump sum” for retirement. The closer to retirement the participant, the greater the annual contributions need to be in order to accumulate the required lump sum.
Second, the power of compound interest. Younger participants have more time for compound interest to work, thus making their annual contribution lower. More Flexible Than You May Think If plan benefit or contribution objectives change, the plan may be amended to meet the new objectives; however, any amendments that would affect the current contribution must be adopted prior to the time the benefits accrue, generally 1,000 hours in a plan year. Retirement Plans for Employees - Have your employer sponsor a retirement plan. The basics of retirement planning How much do you need to save in order to retire? Since Social Security represents only a portion of the income you will need for retirement, you must have a plan to provide for the rest. Experts predict this to be a significant percentage of your income. Everyone’s situation is different, so it may be a wise move to work with a financial professional who can help you determine just how much you’ll need.
One way to start saving for retirement is to have your employer sponsor a retirement plan for himself and all the employees. Please use our defined benefit calculator to generate a report showing how much money the owner of your business can put aside for their own retirement. The tax benefits of saving for retirement By using investment vehicles such as workplace-sponsored plans you can put off paying taxes on your earnings until you are retired and potentially in a lower tax bracket.