Retirement Planning

“As soon as we get familiar with the individual intricacies of a particular client we then seek to sit down with the business owner and their spouse to help map out a financial plan that not only helps plan for retirement, but also debt liquation, planning for college, investment risks etc. As a Gwinnett CPA for decades we have helped hundreds of Atlanta Business Owners not only save on their taxes but help guide them towards short and long term financial health. We never replace the financial planner but work alongside as part of the financial team towards our clients long term financial success.” — John Dillard CPA

So whether you are thinking of retiring to the beaches and history of Charleston, South Carolina or the location of your dreams, it is time to think of the long-term future. What your retirement will look like, where you will go, how you will live, and the peace and comfort you achieve in life will be determined not only by the success of your business, but how you plan ahead. Being a God of order, He planned carefully, choosing and laying the heavens and earth in order. He did not leave anything to chance and neither should you. Though we are all called to store up our treasures in heaven and not here, we are also called, just as was Joseph was in the Old Testament, to use wise and judicious judgment planning for our lives ahead.

In setting up a retirement account there are a myriad of possibilities giving the business great flexibility, but also limiting the business owner’s ability to fund only their own retirement fund and not those of their employees.

Generally speaking there are two types of savings plans, one of which is qualified monies, which simply means that the IRS recognizes these as a tax-deductible retirement plan. The other plan type is a non-qualified, which represents monies that you can save which is not tax deductible upon investment. These would typically be monies that you would fund personally out of your personal dollars for which Uncle Sam will not let you deduct your initial investment.

All of the fund types described below are qualified plans. As your business grows, you might find that different plan types will match your business needs over time. Though you will not want to change plans from year to year—in fact in some plans you are statutorily prohibited from changing—you might want to consider revisiting your initial decision and changing to a new plan down the road. The recaps of the plans listed are general and are not intended to be a full and complete disclosure of the nuances and IRS regulations regarding specific plans. Specific percentages, dollar limits, age considerations, and vesting are considerations of all of the plans, but they are not listed here due to their likelihood of change and the indexing for inflation which regularly occurs.

As one would expect, the plans do have specific forms and procedures to follow, and many of them have formal documents to execute to set up the plan, and annual tax returns for the plan to file to maintain compliance. You will want to be sure to work closely with your CPA and financial adviser to ensure that you have a full and complete understanding of the plan that you ultimately select for your business.

SEP IRA

A SEP IRA is a company paid plan that is well suited for those businesses that want to pay all contributions to an employee’s plan. A company, based upon the business owner’s discretion, elects what to fund as a percentage of each employee’s pay that qualifies. Most employees, whether part or full time, are qualified to participate, and the percentage of contribution is statutorily limited. Employees are immediately vested and accordingly own the monies contributed by the company to the plan.

SIMPLE IRA

A SIMPLE IRA acts like 401K plans, which most of us are familiar with. Employees contribute money to the plan from their payroll/wages, and the company is also required to do a relatively modest matching percentage of each employee’s compensation.

These plans are a relatively new entrant into tax law, and were established so small businesses could offer substantive benefits to their staff without the burdens of a SPD/Originating Plan Document to set up a plan, and the “top heavy” testing which a 401K requires. All monies taken out of an employee’s paycheck and forwarded to a retirement account of any type are immediately vested and owned by the employee. However, they are subject to the tax law and guidelines of any established plans and their contracted documents.

401-K Plans

The 401-K retirement plan was added to tax law decades ago to assist companies in bridging the distance between the added complexity of profit sharing plans and what was available at the time. 401K’s are typically best suited if you have over thirty employees and all desire more of a contribution than a SIMPLE IRA will allow. Unlike a SIMPLE IRA a 401K will require a comprehensive plan document, a plan administrator and trustee, testing to ensure the highly paid employees are not unduly being benefited, and annual tax returns. Solely because of these administrative burdens many firms do not start a 401K until the staff size and profitability of a business warrants otherwise.

Profit Sharing

Profit Sharing plans are generally available to all employers regardless of size, and allow companies to share with their employees the fruits of their labors in a formal qualified plan. A Profit Sharing plan is paid for exclusively by the employer, and comes with a large administrative burden needed to manage the initial set up, compliance, and annual filings.

Because the plan is employer paid, a company has the ability to have an employee earn/vest in the contributions over time, giving the employee an additional incentive to stay at their present place of employment. This helps cut down on a business’s turnover rate. As with all plan variables, vesting has to occur within the confines and guidelines of IRS rules and regulations. Generally, most employers do not consider a profit sharing plan unless they are very profitable or their total employment approaches or exceeds a thousand employees.

Defined Benefit, Age-Weighted, 401K Profit Sharing/Safe Harbor, and other plans

Though there are several other qualified plans available under the tax code, they are not listed here due to their lack of popularity, limited application, and complexity. The above recap lists those that are most commonly used but it is not exclusive. There are many other options available which might be more suited to your individual needs and use. Walking through these options and the careful evaluation of these are a critical part of the process in which your CPA and financial adviser can assist.

All of the guidelines and generalities listed above are just that. Though there are hard and fast rules in the set up and administration of a qualified plan, the application and suitability are up to an individual business owner to decide. In setting up all retirement accounts you should work hand in hand with both your CPA and your financial adviser to ensure that your short term and long term needs are assessed. This will also have the added advantage of gaining the insight of each professional’s wisdom, which will help you more aptly, select a plan most suited to the needs of your business and employees.

Whether you are close to retirement or still many years away. Our comprehensive planning helps many to make the wisest choice in selecting a retirement plan that is best suited to your business. By working with financial advisers with an understanding of tax law and your needs we are able to help guide you through this complex process.

To help ensure your long-term successes, call us today.