Raskin Planning Group

Leverage Small Business with an Effective Retirement Plan: Defer Tax

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Our recent article shared a frequent conversation we have with our clients who own businesses.

To recap, we often find that business owners are interested in deferring taxable income (saving for retirement) and their younger employees are more concerned about current income (saving for retirement isn't important to them at this time). In this article, we evaluate the solution for this type of financial situation.

In this particular case, we established a new 401(k) Profit Sharing Plan. Employees and owners can contribute the maximum salary deferral amount each year (up to $24,000 per employee) and the business can also contribute an additional profit sharing amount at the owner's discretion. The design allowed the employer to allocate a larger profit sharing contribution as a percentage of wages to the two owners and a much smaller contribution to the two employees.

The new plan allows the owners to each save $59,000 tax-deferred, 250% more than their current plan. The new plan did require an additional employer contribution to employees, but $2,650 was not a deterrent for the owners. The additional tax benefits and retirement savings for the owners make the new plan's additional costs worthwhile. Because the plan is a new ERISA plan, the company can also take advantage of a $500 annual federal tax credit for the first three years. The credit offsets some of the administrative costs of the new plan.

This kind of retirement planning is highly customized and dependent upon the business owner's goals, cash-flow and employee demographics. We recommend all small businesses review their existing retirement plans to determine if they have the most effective plan design.

Running a successful business isn't easy and business owners want to know they are rewarded for their investment of capital and hard work. They want to save enough for retirement and they want to pay less current income tax. A business retirement plan can be part of the benefit package that attracts and retains good employees.

The Raskin Planning Group can assist business owners in designing, implementing and monitoring their plans, making sure the plans are meeting long-term business and personal objectives most effectively. Please contact us if you have questions.

Peter Raskin is a registered representative of Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Raskin Planning Group is not an affiliate of Lincoln Financial Advisors. CRN-1404732-012816

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