Choosing a retirement plan for your business 2013
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Transcript of Choosing a retirement plan for your business 2013
Choosing a Retirement Plan for Your Business
Michael GiannettiAgent, New York Life Insurance Co.
777 Main St, Suite 3300Fort Worth, TX 76102
(817) [email protected]
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SMRU500010(exp. 12/31/2014)
Choosing a Retirement Plan for Your Business
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This is intended to be an overview of types of Retirement Plans only and should not be viewed as legal or tax advice. New York Life Insurance Company, it’s affiliates, employees and agents do not provide tax and/or legal advice.
Tax-Qualified Retirement Plans must generally comply with the Employee Retirement Income Security Act of 1974, as amended (ERISA), the Internal Revenue Code of 1986, as amended and other applicable law. For this reason, you should consult with tax advisors and attorneys expert in these matters before establishing a plan.
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Important Tax Disclaimer
This material includes a discussion of one or more tax-related subjects. This tax-related discussion was prepared to assist in the promotion or marketing of the transactions or matters addressed in this material. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding any IRA penalties that may be imposed upon a taxpayer. Taxpayers should always seek and rely on the advice of their own independent tax professionals. Please understand that New York Life, its affiliates and subsidiaries and agents and employees of any thereof may not provide legal or tax advice.
Agenda
• The small business marketplace
• Why business-owners should consider retirement plans for themselves and employees
• Benefits of offering a retirement plan
• Types of plans
• Questions to think about
• Next steps
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Your business as your retirement strategy
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Risks Affecting the Value of Your Business
• Lawsuits
• Natural Disasters – fire, water damage, etc.
• Non-Natural Disasters – vandalism, terrorism, etc.
• Changing technology
• Changing competition
Your business as your retirement Strategy
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Your Retirement Strategy
Tax-Qualified Retirement Plan
+
Your Business
Your Retirement
Strategy
=
Benefits for the Business
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Benefits of offering a retirement plan
• Tax advantage
• A competitive advantage over other employers
• Assists in recruiting and retention of employees
• Boosts morale
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Tax advantage for the business
•Contributions made by the employer are generally tax-deductible to the business
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Tax advantage for the business
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This hypothetical example assumes $250,000 Corporate income, 39% federal tax rate. Company A makes no contribution. Company B makes $50,000 plan contribution
$ 30,500Net Cost to Company
19,5000Tax Savings
78,00097,500Federal taxes at 39%
200,000250,000Taxable Income
50,0000Company Contribution
$250,000
$250,000
Corporate Income
Company BCompany A
How a Retirement Plan Reduces Corporate Taxes
Benefits for You and Your Employees
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Benefits of a retirement plan to you and your employees• Provides a way to secure an income for
retirement
• Employer contributions are not taxable to the employee until the employee withdraws the money
• The earnings grow tax deferred
• Some plans, such as 401(k)s and SIMPLE IRAs, allow employees to make pre-tax contributions
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Benefits of a retirement plan to you and your employees
• Advantage of using payroll deductions* (401(k) & SIMPLE IRA)
• Plan assets are generally protected from creditors
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* Your employee’s participation in the payroll deduction program is completely voluntary.
Tax advantages for you & your employeesEmployer Contributions Can Mean More Retirement Savings
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• Employee A works for a company that does not offer a retirement plan
• Employee B’s employer has been contributing $2,500 annually for Employee B
• After 10 years •Employee A has $0.00•Employee B has over $33,000
Retirement Savings for Employee B*
*Assumes a fixed 5% rate of return for the 10 year period for an annual contribution of $2,500.This example is hypothetical and intended for illustration purposes only. It is not indicative of the actual performance of any particular product.
Tax advantages for you & your employees
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$ 300$ 0Pretax Advantage
22,10021,800Net After-Tax Amount Available
02,000After-Tax Contributions
22,10023,800After-Tax Wages
3,9004,200Federal taxes at 15%
26,00028,000Taxable Income
2,0000Pretax Retirement Contributions
$28,000$ 28,000Annual Wages
Employee BEmployee A
How Pretax Contributions Can Mean A HigherNet After-Savings Amount Available
This hypothetical example assumes $28,000 annual income, 15% federal tax rate. Employee A saves $2,000 after-tax.
Employee B saves $2,000 pretax through a 401(k) plan or SIMPLE IRA.
Types of Retirement Plans
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Defined Benefit Plans - Defines the amount of money you are going to receive in retirement. They are company pensions that provide income for life throughout retirement.
Defined Benefit Plan & Defined Contribution Plan
Each month A check arrives in the
The Defined Benefit Plan provides income
for life throughout retirement
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Defined Contribution Plans – defines how much is being contributed to the plan during the working years. The amount of money available to you in retirement is based on the amount you contribute, how it is invested and how long it is invested.
Defined Benefit Plan & Defined Contribution Plan
During your working years you decide how much money you are
investing…
$ $
in order to create
a nest egg.
Depending on investment returns, you
may have a sum of money that you may use
to generate income in retirement.
Types of plans for small businesses
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Defined Benefit Plans
Traditional Pension
Defined Benefit Plan•Small Business Profile:
– Owner age 45 or more*
– Few employees, who are typically younger than owner
– Highly profitable business and is expected to remain so
•The employer must make contributions each year
•Contributions are generally 100% tax deductible for your business
•Must comply with the IRC’s rules applicable to qualified plans as well as ERISA
•Defined Benefit plans are more complex and expensive to establish and maintain than other types of retirement plans.
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*Because you need to fund a benefit over a relatively short time frame, the contributions would be larger for older age employees
Defined Benefit Plan
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Joe, Business Owner 1
Mike, Business Owner 2
Business Owner’s age 25 50
Desired Retirement Age 65 65
Years to Retirement 40 15
Desired Pension benefit $4,000 monthly
$4,000 monthly
Amount needed to provide benefit*
$763,573 $763,573
Annual contribution needed to reach goal (assumes plan balance earns 3%)
Approximately $10,127 annually
Approximately $41,055 annually
*Illustrative purposes only. Should not be construed as a solicitation of any specific product or service. Assumptions are used to illustrate the amount of life time income generated on a monthly basis only. Based on the payout of a Single Life Only Lifetime Income Annuity for a male age 65 as of 1/29/13. Payout amounts for female applicants, who have longer life expectancies are lower.. For other income plans and premiums less than $600,000, the payout rates will be lower. Payouts are subject to change and exclude premium state taxes,
Types of plans for small businesses
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Defined Contribution Plans
• SEP IRA• SIMPLE IRA• 401(k)• Profit Sharing• Money Purchase
Defined Contribution PlanSEP IRA
• Business Profile– Typically fewer employees (i.e.: 25 or less)
•Contributions are made by the employer
•The employer decides how much, or whether or not to contribute each year, based on profitability
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Employer ContributionsEmployee Pre-Taxed
Contributions
Lesser of 25% of the employee’s compensation (based on a $255,000* maximum compensation) or $51,000* (whichever is less)*for 2013
None
Defined Contribution PlanSEP IRA
• SEP IRAs do not require IRS approval, reporting, or annual discrimination testing
• Immediate vesting of contributions
• Low administrative cost
• Loans are not permitted
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Defined Contribution PlanSIMPLE IRA
• Business Profile
– Large number of employees (maximum 100)
– Would like employees to make contributions
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Maximum Employer Matching
Contributions
Maximum Employee Pre-
taxed Contributions
Maximum Employee Catch-Up
Contributions (age 50 and older)
•Matching (up to 3%)
•Non-Elective (2%)
Up to $12,000 in 2013
Up to $2,500 in 2013
Defined Contribution PlanSIMPLE IRA
• Immediate vesting for all contributions
• No IRS approval, reporting, or annual discrimination testing
• Low administrative cost
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Defined Contribution Plan401(k) Plan
• Business Profile
– Small business on the verge of becoming a mid-cap business
– Large number of employees (typically 50 or more)
– Loan provisions available
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Employer Matching Contributions
Employee Pre-tax Contributions
Employee Catch-Up Contributions (age
50 and older)
OptionalUp to $17,500 in
2013Up to $5,500 in 2013
Defined Contribution Plan401(k) Plan
• Non-Discrimination Testing
• Customized plan design options
• Vesting schedule options
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Years of Service
Percentage
1 20%
2 40%
3 60%
4 80%
5 or more 100%
• Administrative Costs
Years of Service
Percentage
1 40%
2 80%
3 or more 100%
Defined Contribution PlanProfit Sharing Plan
• Contributions are made by the employer
• The employer decides how much, or whether or not to contribute each year, based on profitability
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Maximum Employer Contributions*
Employee Pre-Taxed
Contributions•Lesser of 100% of the participant’s compensation (based on a $255,000** maximum compensation) or $51,000**The maximum employer deduction is 25% of all participants’ compensation**for 2013
None
Defined Contribution PlanProfit Sharing Plan
• Provisions for in-service withdrawals
• Vesting schedule options
• Administrative costs
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Defined Contribution PlanMoney Purchase Plan
• Fixed contribution percentage
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Maximum Employer Contributions*Employee Pre-Taxed
Contributions
• Lesser of 100% of the participant’s compensation (based on a $255,000** maximum compensation) or $51,000**The maximum employer deduction is 25% of all participants’ compensation**for 2013
None
• Failure to make contributions results in funding deficiency penalty
• In-service withdrawals are not allowed
• Vesting schedule options
• Administrative costs
Defined Contribution Plan
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Joe, Business Owner 1
Mike, Business Owner 2
Business Owner’s age 25 50
Desired Retirement Age 65 65
Years to Retirement 40 15
Annual Contribution $45,000 $45,000
Total Assets at Retirement(assumes plan balance returns an average of 6%*)
$7,382,145 $1,110,263
Hypothetical Example for Illustrative Purposes Only
*The rate of return is hypothetical and not based on the performance of any specific investment. You may earn more or less than this amount based on the actual performance of your investment selections.
Questions to think about
• What type of business do you operate?– Small-Cap
– Mid-Cap
– Type of Industry
• How many employees are at your company?
• What is the age range of your employees?
• Are there any other active retirement plans in place?
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Questions to think about
• What is your turnover rate?
• What types of employees would you like to include?*
• Is your company growing? If so, at what rate?
• When would you like the plan to start?– Tax Year?
– Calendar Year?
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*This is all subject to IRS coverage and nondiscrimination rules.
Next Steps and Action Plan Evaluations• Complete the evaluation
• Schedule a free, no obligation appointment
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*This is all subject to IRS coverage and nondiscrimination rules.
Please remember that this is intended to be a general overview of types of Retirement Plans only. Tax-Qualified Retirement Plans must comply with the Employee Retirement Income Security Act of 1974 as amended (ERISA), the Internal Revenue Code of 1986, as amended and other applicable law. For this reason, you should consult with tax advisors and attorneys expert in these matters before establishing a plan. New York Life, its affiliates, employees and agents do not provide legal or tax advice.
Thank YouMichael Giannetti
Agent, New York Life Insurance Co.777 Main St, Suite 3300Fort Worth, TX 76102
(817) [email protected]
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This seminar is for informational purposes only. You should consult your professional advisors for tax, legal or accounting advice. Choosing a Retirement Plan for Your Business