Which Corporate Retirement Plan Should Your Business-Owning Clients Choose?

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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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About Lawrence Sprung

Larry Sprung

Lawrence Sprung CFP® is the President and Founder of Mitlin Financial, Inc. He entered the financial industry in 1996 and continues to be inspired and energized by the challenge of helping his clients achieve and even surpass their financial goals.

Mitlin Financial, Inc. is an SEC Registered Investment Advisor (RIA) that prides itself on facilitating their client's financial future.  Being a fiduciary is a perfect fit for Larry’s personality and business perspective as he puts clients first and consistently helps them make decisions that are right for them.

Larry is known as a devoted educator. He is a frequent speaker at industry conferences and regularly films the firm’s “Mitlin Minute,” which is designed to provided information regarding relevant financial topics.

Today, Larry is proud to be serving the second and third generations of his clients. He has seen first-hand how strong financial habits instilled in parents, children and grandchildren, can impact a family’s wealth and wealth stewardship for generations.

As an active volunteer, Larry serves on the National Board of the American Foundation for Suicide Prevention (AFSP).  With his wife, Denise, he has raised more than $1,000,000 for the organization through the Keith Milano Memorial Fund. The fund was created at AFSP in memory of Larry and Denise’s brother-in-law and brother, respectively.

Larry has been recognized as one of Long Island Business News' "40 Under 40," and his commentary is regularly featured in publications such as Long Island Business News, U.S. News & World Reports, Newsday, Investopedia, Yahoo Finance, and Nasdaq’s website. 

If you have the pleasure of meeting Mr. Sprung, you will find that he is more often found conversing about AFSP, his sons’ or a hockey game. Doing business and creating relationships is at the heart of who Larry is and it is all done with style and grace.


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