3 Ways to Improve Your Small Business 401k Plan

Transcript

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Welcome back business owners. As your business matures, you may experience several different growth stages. Like a parent watching their child’s shoe size, you should determine if your retirement plan has kept pace at each level of growth. If you fail to adjust, your company’s retirement plan, like the child’s old shoes may become poor or painful.

I’m Chuck Lewandowski CERTIFIED FINANCIAL PLANNER professional . Today, I would like to discuss three opportunities to help improve your retirement plan and maximize your retirement savings as you successfully grow your business .

Number one. Avoid the trap three retirement plan.

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My friend, CJ ,owned a small construction company which grew very quickly over the last year. His payroll company rep offered to add a 401k plan service to his contract at no additional cost. CJ thought,

What do we have to lose? We’ll actually CJ may  have a lot to lose. Although free is a very seductive word,  in the case of a plan offered by some payroll providers, what you don’t see may hurt you. The plan may offer only high cost funds that pay fees to the payroll company or its subsidiary. Also the payroll company may not assign an advisor to help educate the workforce. Business owners like CJ need to recognize that he or she is held to a very high standard by the Department of Labor for sponsoring a 401k plan.

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Failure to educate your workforce or to provide a plan with reasonable costs can result in significant penalties. Be wary of free.

Number two, choose the right plan design. Many professional service companies like a dental practice or a law firm, may have a group of older practitioners that are supported by a younger staff. Companies like this may choose to install a safe Harbor 401k plan with a profit sharing component. However, there may be an opportunity to customize the plan to allow for the older employees to receive greater profit sharing contributions. This type of plan design called a cross tested plan, recognizes that younger employees require a smaller benefit than someone who is closed to retire.

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Number three , Boost Retirement Savings by Adding a Cash Balance Plan

My attorney, Jeff, has practiced for over 30 years and has built a solid, profitable law firm with great future revenue streams locked in because of retainer agreements. Rather than boosting his salary, Jeff has re-invested the profits back into the business. As he gets closer to retirement, Jeff would like to increase his retirement savings beyond the annual 401k contributions. Jeff could consider adding a Cash Balance plan for retirement savings. A Cash balance plan is a type of retirement plan that allows for large deductible contributions that grow tax deferred and can be rolled over at retirement. The Plan consists of annual pay credits that grow at a predetermined rate. The credits often differ among participants in the plan. For example, owners generally can receive very large pay credits and non-owner employees receive relatively small pay credits. These plans can be combined with a 401(k) Profit Sharing plan to significantly increase retirement savings in a short period of time. At retirement, the funds can be rolled into an IRA.

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Each of these three scenarios require a strong team to bring them to an implementation. Ideally, your team should consist of a tax advisor recognize the great tax savings benefit associated with these plans. The remaining team members should include a financial advisor who is familiar with custom retirement plans and a third party administrator or TPA with strong plan design experience. With such a team in place, you may significantly improve the odds of retirement savings success. Please call me if you need an experienced knowledgeable team. Thanks.

Advisory services offered through Capital Analysts or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC.www.lincolninvestment.com 

 West Coast Financial Group, Inc. and the above firms are independent and non-affiliated.

Tax advice is not offered through, nor supervised by Lincoln Investment or Capital Analysts

There is no guarantee that any strategies discussed will result in a positive outcome. You should discuss any legal, tax or financial matters with the appropriate professional.