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Business Retirement Plans

Retirement Plans For Your Business

One of the most difficult challenges business owners face is how to turn years of hard work into tangible wealth. Building a “successful” business takes a lot of time and investment. It takes about four years for businesses to become profitable. Even then, the business owner is the one doing most of the operational work. The business can’t be considered truly “successful” until the owner is able to offload the bulk of the operational duties to other employees. For most businesses this doesn’t occur until about the tenth year of opening the doors.
The #1 key to building a truly successful business is being able to attract talented employees who can help grow the business and deliver a quality product or service to customers.

Every business owner should want to get to this point and a company retirement plan can help them get there. But this is not the only reason a company should offer a retirement plan to its employees.

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Other Benefits Of Company Retirement Plans

A Company Retirement Plan Can Be Designed To Meet The Business Owner’s Other Planning Objectives:

  • Provide liquid investment funds to complement the wealth tied up in the business
  • Manage income tax expenses
  • Retain valuable employees
  • Protect assets from potential creditors
  • Enhance the value of the overall business
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Retirement Plans Are A Win-Win Proposition

Are you considering adding a retirement plan to your employee benefits package?
Here are some reasons why it could make a lot of sense for both the employer and the employees:

Employer Gets:

  • Reduced tax expense
  • Employees feel greater loyalty
  • Improved employee productivity
  • Increased control over wages

Employees Get:

  • Greater ability to prepare for retirement
  • Greater control over their tax liabilities
  • Access to professional retirement planning tools
  • Access professional retirement counselors
Whether Your Business Has Two Employees Or Fifty, A Retirement Plan Can Provide Valuable Benefits To All.
Larson Wealth Management Can Help You Choose The Plan That Is The Best Fit For Your Business.
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Plan Types

There are four main plan types available to employers looking to offer a new plan to their employee group.
Each is unique and has its own set of features and benefits.

SEP IRA

The Self Employed Pension (SEP) Plan is an arrangement where the employer makes a pre-tax contribution to all eligible employees (including the business owner). The employer is able to determine what qualifies an employee to be eligible to participate in the plan. A contribution formula is determined ahead of time and must be followed on a consistent basis. All contributions are made by the company and so the business receives a tax deduction for all contributions. The maximum contribution is $69,000 per employee (as of 2024). The plan is easy to set up and easy to maintain. Each participant has his or her own separate IRA account and is responsible for their own investment choices. Because the IRS does not require any special compliance forms to be filed at the end of the year there is no need for the employer to employ the services of an outside accountant.

KEY FEATURES OF SEP IRA:
  • Cost to setup: $0
  • Annual government compliance costs: $0
  • High contribution limits
  • Reduce tax liability
KEY BENEFITS:
  • Cost-efficient
  • Convenience
  • Save money
  • Low maintenance
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SIMPLE IRA

The SIMPLE IRA is similar to the 401(k) Plan in terms of how it functions but with a few key differences. First, the SIMPLE IRA is only available to employers with 100 or fewer employees. Employees make pre-tax contributions on a salary-deferral basis. As of 2024 the annual salary deferral limit is $16,000 (plus an additional $3,500 if over 50). The employer must provide a 100% matching contribution up to 3% of the employee’s salary. Although the SIMPLE IRA is similar to the 401(k), the record-keeping requirements are significantly less. Each employee has their own IRA account and they are responsible for their own investment choices. Because this plan is a salary-reduction plan, the employer must process the contributions through a formal payroll system.

KEY FEATURES OF SIMPLE IRA:
  • Cost to setup: $0
  • Annual government compliance costs: $0
  • High contribution limits
  • Reduce tax liability
KEY BENEFITS:
  • Cost-efficient
  • Convenience
  • Save money
  • Low maintenance

401(K) Plan: Traditional, Roth, Or Both

This is the most popular type of retirement plan implemented by employers due to its flexibility and scalability. 401(k) Plans are used by many businesses ranging from single, self-employed individuals to Fortune 500 companies with thousands of employees in multiple locations. Employees may make contributions on either a pre-tax basis (Traditional) or a post-tax basis (Roth) or a combination of the two. This flexibility gives the employee a powerful tool to help control how their income is taxed over their lifetime!
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The 2024 salary deferral limit is $23,000 (plus an additional $7,500 if over 50). The employer MAY provide a matching contribution, but is not obligated to do so. A very common matching amount is 100% match up to 3% of the employee’s salary. The maximum matching contribution formula is 100% match up to 6% of the employee’s salary. The large contribution limits allow eligible participants to defer nothing, a small amount, or a large amount each and every year. The choice is theirs.

In addition, the employer can offer a profit-sharing contribution as a special way of thanking the employees for contributing to the profitability of the employer. These extra contributions are not common and are not required. The 401(k) Plan does impose some annual record-keeping and compliance form filing requirements upon the employer. It is up to the employer to prove their compliance with IRS and ERISA regulations. Therefore, there are ongoing administrative costs that need to be considered. Cost-effective solutions are available to meet these requirements. All in all, the 401(k) is a great choice for employers with more than 20 employees because of the flexibility it provides. The benefits of having the plan is well worth the small annual cost.
The 2020 salary deferral limit is $19,500 (plus an additional $5,000 if over 50). The employer MAY provide a matching contribution, but is not obligated to do so. A very common matching amount is 100% match up to 3% of the employee’s salary. The maximum matching contribution formula is 100% match up to 6% of the employee’s salary. The large contribution limits allow eligible participants to defer nothing, a small amount, or a large amount each and every year. The choice is theirs.
In addition, the employer can offer a profit-sharing contribution as a special way of thanking the employees for contributing to the profitability of the employer. These extra contributions are not common and are not required. The 401(k) Plan does impose some annual record-keeping and compliance form filing requirements upon the employer. It is up to the employer to prove their compliance with IRS and ERISA regulations. Therefore, there are ongoing administrative costs that need to be considered. Cost-effective solutions are available to meet these requirements. All in all, the 401(k) is a great choice for employers with more than 20 employees because of the flexibility it provides. The benefits of having the plan is well worth the small annual cost.
KEY FEATURES OF 401(K) PLAN:
  • Cost to setup: $1,000-$3,000
  • Annual government compliance costs: $1,000-$5,000
  • High contribution limits
  • Potentially high tax deductions for employer
KEY BENEFITS:
  • Flexibility
  • Convenience
  • Save money
  • Reduce tax liability
KEY FEATURES OF 401(K) PLAN:
  • Cost to setup: $1,000-$3,000
  • Annual Compliance costs: $1,000-$5,000
  • High contribution limits
  • Potentially high tax deductions for employer
KEY BENEFITS:
  • Flexibility
  • Convenience
  • Save money
  • Reduce tax liability
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Defined Benefit Plan

Employers with steady, recurring profits that want to make larger contributions than allowed by the 401(k), SIMPLE IRA, or SEP IRA may consider implementing a Defined Benefit Plan. With a defined benefit plan the maximum annual contribution for participants is based on three items: 1. the amount of money an employee will need once they reach retirement 2. the length of time they have left to retirement 3. conservative estimated rate of return during the employee’s working years
Because most workers have not saved up enough for a comfortable retirement, the resulting contribution calculations show that a large amount of money must be contributed to the employee an on annual basis. This is especially true in the case of older workers.

The maximum allowable contributions for a Defined Benefit Plan are much higher than a 401(k) plan because fairly conservative estimates must be used in determining a participant’s future pension amount. In some cases the contribution for one employee could be more than $150,000/year!

Because most workers have not saved up enough for a comfortable retirement, the resulting contribution calculations show that a large amount of money must be contributed to the employee an on annual basis. This is especially true in the case of older workers.
The maximum allowable contributions for a Defined Benefit Plan are much higher than a 401(k) plan because fairly conservative estimates must be used in determining a participant’s future pension amount. In some cases the contribution for one employee could be as high as $150,000/year.
The employer is responsible for making the retirement contribution on behalf of each eligible employee. The employer determines the eligibility formula at the outset but must stick to it. The employer must also be able to actually make the required contributions consistently on an annual basis. The advantage is that the employer can contribute much more to the plan and reduce its tax liability by a larger amount. The disadvantage is that the employer needs to be committed to consistent contributions to the plan regardless of economic circumstances.
The benefits of this plan can be tremendous! However, there are two major drawbacks to this type of plan that an employer should consider:
1. The compliance and oversight requirements are higher.
2. Employer commits to large annual funding amounts
The Defined Benefit Plan is a great fit for small employers that want to make large contributions for older employees (including the owners).
The employer is responsible for making the retirement contribution on behalf of each eligible employee. The employer determines the eligibility formula at the outset but must stick to it. The employer must also be able to actually make the required contributions consistently on an annual basis. The advantage is that the employer can contribute much more to the plan and reduce its tax liability by a larger amount. The disadvantage is that the employer needs to be committed to consistent contributions to the plan regardless of economic circumstances.
The benefits of this plan can be tremendous! However, there are two major drawbacks to this type of plan that an employer should consider:
1. The compliance and oversight requirements are higher.
2. Employer commits to large annual funding amounts
The Defined Benefit Plan is a great fit for small employers that want to make large contributions for older employees (including the owners).
KEY FEATURES OF DEFINED BENEFIT PLAN:
  • Cost to setup: $1,500-$3,000
  • Annual Compliance costs: $1,500-$5,000
  • High contribution limits
  • Large tax deductions for employer
KEY BENEFITS:
  • Simplifies planning for retirement
  • Greater security of plan balances
  • Save money
  • Reduce tax liability
KEY FEATURES OF DEFINED BENEFIT PLAN:
  • Cost to setup: $1,500-$3,000
  • Annual Compliance costs: $1,500-$5,000
  • High contribution limits
  • Large tax deductions for employer
KEY BENEFITS:
  • Simplifies planning for retirement
  • Greater security of plan balances
  • Save money
  • Reduce tax liability

Do You Need To Remodel Your Existing Retirement Plan?

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Larson Wealth Management is an experienced, fiduciary advisor to qualified retirement plans. If your plan isn’t performing well, if you never hear from your plan advisor, or if you aren’t happy with the current cost structure – we can help! As a plan sponsor, you are responsible for ensuring that your company-sponsored retirement plan meets the needs of the participants. You most likely are using a team of advisors to help you manage your company’s retirement plan. But that alone does not guarantee that your plan meets your compliance requirements.
Learn More

Do You Need To Remodel Your Existing Retirement Plan?

As With Any Financial Plan, Company-Sponsored Retirement Plans Need To Be Reviewed Regularly
To Ensure The Sponsor’s Objectives Are Being Met. Some Typical Measures Include:
  • How soon are employees eligible to participate?
  • What percentage of eligible employees actually participate?
  • What percentage of salary are your employees actually contributing?
  • What percentage of participants retire on or before normal retirement age?
  • How long is your vesting schedule?
  • How do your costs compare to similar 401(k) Plans?
  • Does your investment lineup give employees the ability to grow their balances while effectively controlling risk?
Is your advisor helping you monitor these, and other measures, of your plan’s effectiveness? Does your advisor also document their consultations with you regarding these items? Larson Wealth Management has a system in place to provide reporting to you on these topics. We can provide suggestions on improving the overall performance and effectiveness of your plan. Further, we provide you with documentation showing that your plan is routinely tested for effectiveness.

ARE YOU READY TO WORK ON YOUR COMPANY RETIREMENT PLAN?

Getting started is easy. The first step is to let us know how we can help you. Just fill out the simple contact form below and we will be in touch with you right away – or just call us at 480-699-5540.

Click here to schedule a free consultation to discuss your Company Retirement Plan needs
Larson Wealth Management, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where LarsonWealth Management and its representatives are properly licensed or exempted. This website/information has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. No advice may be rendered by LarsonWealth Management unless a client services agreement has been properly executed. This website/information should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.
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Larson Wealth Management is an independent Registered Investment Advisor (RIA). 

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Don C. Larson, CFP®, MBA