President and Founder Mitlin Financial, Inc.
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Which Corporate Retirement Plan Should Your Business-Owning Clients Choose?

Jul 9th 2019
President and Founder Mitlin Financial, Inc.
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retirement plan
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There are many ways you can help your clients and their businesses be more successful over time. One is to help them set up a corporate retirement plan. This will help your client build wealth, reduce their tax liability and let them help their employees become retirement-ready.

There are many options for businesses that are looking to incorporate a retirement plan. We will go over a few of the more popular ones available:

1)    Solo or Individual 401(k): This plan is available for those companies where the only employees are either owners of immediate family members. This is ideal for companies that can qualify because there will be no discrimination or top-heavy testing needed and it will afford many of the same benefits of a traditional 401(k) at a fraction of the cost.

2)    401(k): A 401(k) is a complicated plan, but it will work well in the right situation. The employer typically will need to make a contribution towards the employees in order to pass the testing necessary for the owners to contribute. More mature companies will find that this plan will be a good fit. 

3)    Defined Benefit Plan: These plans have been on the decline, as you may have seen, but they can work well in situations where you have a company of owners only, owners and family members or where there is a distinct age difference where the owners are much older than their employees. In some of these circumstances, these plans will allow the employer to take a large tax deduction and provide the owners with a sizeable benefit towards their retirement.

4)    SEP IRA: The SEP IRA is a plan that will allow businesses to put away up to 25 percent of their owners and employees pay into a retirement account. It is important to know that you must defer the same percentage for all employees across the board. Therefore, if you put away 25 percent for the owners, you must do the same for the employees. You can have them wait for two years to become eligible for the plan.

5)    SIMPLE IRA:  The SIMPLE IRA works very similarly to a 401(k) plan in that employees can defer up to 100 percent of their pay and put away a maximum of $13,000 for 2019. This is less than the $19,000 you are allowed to put away for a 401(k). In addition, there is typically an employer match of 3 percent. The SIMPLE also does not carry the administrative and recordkeeping burdens of a 401(k).

The important thing to remember is there are many choices available to your clients who are business owners.  Not all of these plans are right in every situation, but there may be a few options available. You'll want to work with a wealth advisor who can outline the benefits and disadvantages of each plan for your client and see what will also give them the greatest tax deduction. This presents you with a great opportunity to help your client, have a meaningful conversation with them about their business and add value at the same time.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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