Considering a Company 401k Plan?

Considering a Company 401k Plan?

by | Jul 22, 2021 | Business Planning, Retirement Planning

401k Plans are a great way to prepare for retirement and retain employees

Qualified company retirement plans are plans that are tax deferred for the investors. Qualified plans are plans that both employees and employers contribute too and receive a tax deduction for their contributions.  The most common example of a qualified plan is a company 401(k).  Additionally, a defined benefit plan is an option for those looking to make higher contribution amounts than the 401k plan allows. Now-a-days defined benefit plans are becoming less and less popular but can still be a good savings instrument for high-net-worth business owners.  When considering a company 401(k) plan, employers need to understand that when they make company contributions these contributions need to be made for all eligible employees.  Company 401(k) plans are prohibited from discriminating in favor of officers, owners, shareholders, and highly compensated employees.  If a business owner is looking for a way to favor key employees then they may want to consider a nonqualified retirement plan.

 

Here are some metrics to look at when considering whether to offer a 401(k) plan with a company contribution.

– Has the company reached a level of stability?

– What is the future growth forecast?

– What is the cash flow history?

– Is the company losing talented employees for competitors with a better benefit offering?

 

Benefits of a qualified company retirement plan.

For a business owner a qualified retirement plan can be an excellent vehicle for deferring taxes and increasing future retirement income. The owner can get a deduction from the payroll contributions they make and then also get a business deduction on the company contributions.  This can also be a way to retain top talent and reduce taxes in the process by offering a company match or profit-sharing contribution.  The theory behind making pretax contributions while working is that these will be your high tax years. Later in retirement many will be in a lower tax bracket while they start taking withdrawals.  Older employees become more and more aware of the benefits of a 401(k) plan and can value the ability to use this savings vehicle to build a nest egg to live off during and through retirement.  Young employees stand to benefit most from 401(k) savings due to the long-time horizon their accounts can grow tax deferred.  From a business owner perspective, the cost of the plan can be shared amongst the employees. The plan also allows flexibility for the business owner to choose what the company match will be and what/if any profit sharing to make each year.

 

Potential disadvantages of establishing a 401k plan

Qualified plans have tax favored treatment with the Internal Revenue Service. With those tax favored treatments comes restrictions and administrative burdens that are imposed by the IRS.  The following are some regulatory factors that need to be considered by the plan administrator. These factors are closely regulated by plan auditors.

  • Contributions to employees
  • Federal reporting and disclosure requirements
  • Administrative expenses
  • Nondiscriminatory testing

 

These are all factors that plan administrators must have a defined process. For a qualified plan to keep its qualified, tax-favored status it must not discriminate its benefits towards highly compensated employees. There are certain testing requirements that must be met each year to ensure those qualifications are being met. Additionally regulatory factors around reporting and disclosure requirements must be provided to the IRA, ERISA and plan participants. This is the reason why many companies hire an outside fiduciary advisor to help them with this plan requirements.

 

If you would like to schedule a call or zoom meeting to discuss your company 401k plan please Click Here

 

 

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Preparing Your Business and Investments for More Lockdowns

Preparing Your Business and Investments for More Lockdowns

by | Nov 12, 2020 | Business Planning

With the number of daily cases hitting all time highs across the country and the tone of Governor Mike Dewine last night it appears we are at risk for having another round of lockdowns across the state of Ohio and the country.  Here are some steps you can take now to prepare your business and investment accounts in case we are forced to stay at home and close our businesses.

1. Call Your Bank

There have been several changes to the PPP loan forgiveness process since the first round of loans went out.  Some of these changes include the process to have your loan forgiven and an extension of the covered period.  For smaller PPP loans many companies are now eligible to use the form 3805 EZ which is a much simpler process. Here is a link to the updated 3805 EZ form. Talk with your bank about the possibility of additional PPP loans or small business grants that may become available if Congress approves additional funds. Ask them about the type of information they may be looking for to approve you for any type of small business loan or grant.  Additionally, you can speak with you bank about the possibility of a line of credit.  See what current rates are available and what the process would be to get this setup for your business.  This can help for short term funds you may need for projects or to maintain payroll in case Congress does not get any relief passed quickly enough.  Below is are 4 ways that the small business association can help you business.

 

2. Speed up your pipeline

Look at what projects, orders or sales you are anticipating in the future and look to get those completed in the next couple of weeks. There may be routine annual projects or orders that get completed at the beginning of each year and now might be the time to get that business in the door. This may mean working extra hours over these next couple of weeks but that extra cash flow can help if things get slow again due to lockdowns.  Now is a good time to call your clients or customers and see if this opportunity presents itself. In addition to getting the projects completed now there could also be a tax incentive to do so.  Although, the election results seem to be pointing to a divided government there is still a chance the senate will flip to a Democrat majority and tax raises could be passed next year.

Here is a look at the proposed changes to the corporate tax rate.

3. Stay Invested

The lockdowns that we saw back in the spring and even in some spots that continued throughout the summer showed us a few ways the market could react.  The drop that we saw in the stock market was the fastest drop we have seen in history. That also lead to the quickest recovery from a bear market as well.  Some of the best days in the stock market are oftentimes immediately following the worst days in the market. For this reason it is nearly impossible to time when to get in or out of the market.  Therefore, this time around it is important to stay invested in your accounts. The Federal Reserve and Congress acted rapidly to get bills passed and this lead to a sharp rebound for stocks. Missing a day that a bill gets passed can be costly in the long run.  Another reason to keep your money invested is because of the news we received earlier this week from Pfizer.  This article states that Pfizer has a vaccine that has been proven to be 90% effective. When this news broke on Monday the stock market soared.  Lastly, not all stocks are effected equally by lockdowns. There are many technology stocks and healthcare stocks that are seeing their highest returns on record.  

Here is a breakdown of the major stock market returns for this year. As you can see the Nasdaq has drastically outperformed the other indices.  

*Past performance is no guarantee of future performance. 

If you would like to schedule a call or zoom meeting to discuss a review of your investments Click Here

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