Categories
Retirement Plans

Maximum Pension Limits for 2021

Overview

Many employee benefits are subject to annual dollar limits that are occasionally increased due to inflation. The Internal Revenue Service (IRS) recently announced cost-of-living adjustments to the annual dollar limits for various welfare and retirement plan limits for 2021. Most of the limits will remain the same, but some of the limits will increase effective January 1, 2021.

The following are some important limits in effect for 2021:

  • Maximum compensation for plan purposes is $290,000
  • Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $19,166.67 with an annual benefit $230,000
  • Highly Compensated Employee compensation $130,000+
  • Maximum Defined Contribution / Profit Sharing Contribution $58,000
  • Maximum SEP Contribution $58,000
  • Maximum 401(k) Contribution $19,500. Catch-up Contribution for age 50 and over $6,500
  • Maximum SIMPLE Contribution $13,500

Plan Ahead

Employers should update their benefit plan designs with these new limits, and make sure that their plan will reflect the new 2021 limits. Employers may also want to communicate the new benefit plan limits to their employees.

Click here to read the full IRS announcement.

Categories
Retirement Plans

Is Socially Conscious Investing a Breach of Fiduciary Duty?

On June 23, 2020, the Department of Labor issued a proposed rule addressing the circumstances under which a fiduciary of a qualified retirement plan can base investment decisions on socially conscious factors.

What is Socially Conscious Investing?

Socially conscious investing, otherwise known by the acronym ESG, is a form of investing designed to promote social goals.  Under an ESG strategy, an investor screens potential investments based on environmental, social and governance criteria.  Environmental criteria consider how a company’s business practices treat the environment.  Social criteria consider how a company manages its relationship with its employees, customers and its community.  Governance criteria considers a company’s management practices, such as executive pay and shareholder rights.

Under What Circumstances is ESG Investing Allowed?

The proposed rule reiterates that the purpose of a qualified retirement plan is to maximize the retirement benefits of the plan participants.  To that end, investment decisions must be made with one goal in mind – maximizing investment performance.  Because ESG subordinates investment returns to non-financial objectives, it may run afoul of the fiduciary standard set forth in ERISA.

The proposed rule makes five points:
  1. ERISA requires plan fiduciaries to make investment decisions based on financial considerations “relevant to the risk-adjusted economic value of a particular investment or investment course of action”.
  2. ERISA’s “exclusive purpose” rule prohibits a fiduciary from subordinating the interests of plan participants in retirement income to non-pecuniary goals.
  3. A fiduciary must consider all investments available to meet their duty of prudence and loyalty under ERISA.
  4. ESG factors in investment decisions can be a valid pecuniary consideration if required economic analysis establishes that the ESG investment presents economic risks or opportunities that a qualified investment professional would find acceptable.
  5. A 401(k) plan may provide designated investment alternatives.

In announcing the proposed rule, Secretary of Labor Eugene Scalia said that:

Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan.  Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.

Categories
Retirement Plans Technical Memorandum

Notice 2020-50 Expands Rights Under the CARES Act

On June 19, 2020, the IRS issued Notice 2020-50, expanding the relief for Coronavirus-Related Distributions (CRDs) from qualified retirement plans provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

What are Coronavirus-Related Distributions?

Section 2202(a) of the CARES Act provides special tax treatment for certain distributions from qualified retirement plans.  Generally, distributions from a qualified retirement plan are taxable in the year in which they are made and are also subject to an additional tax of ten percent (10%), if the participant is younger than 59½ years old.  The CARES Act provides that a CRD may be included in the recipient’s taxable income ratably over a three-year period, rather than entirely in the year of distribution.  In addition, the CARES Act exempts CRDs from the 10% tax on early distribution.  So, what is a CRD?

A Coronavirus-Related Distribution is essentially any distribution from a qualified retirement plan made to a “Qualified Individual” on or before December 31, 2020.

Who is a Qualified Individual?  

Section 2202(a)(4) of the CARES Act defines a “Qualified Individual” as any individual:

  • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 19 (referred to collectively as COVID-19) by a test approved by the CDC;
  • whose spouse or dependent is diagnosed with COVID-19; or
  • who experiences adverse financial consequences as a result of:
  • being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19;
  • being unable to work to lack of childcare; or
  • the closing or reduction of hours of a business owned or operated by the individual due to COVID-19.

At the time that the CARES Act was passed, some observers noted that the definition of Qualified Individual was incomplete.  Certain persons who could be adversely affected by the COVID-19 pandemic were left out of the definition.  For example, what about a person whose spouse was unable to work due to lack of childcare?

Notice 2020-50 to the Rescue!

In Notice 2020-50, the IRS expands the group of persons who are Qualified Individuals and can take advantage of the provisions of the CARES Act.  Notice 2020-50 provides that a Qualified Individual includes an individual who experiences adverse financial consequences as a result of:

  • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • the individual’s spouse of a member of the individual’s household being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • closing or reducing hours of a business owned or operated by the individual’s spouse of a member of the individual’s household due to COVID-19.

Rarely does the IRS expand on a taxpayer’s rights.  However, in Notice 2020-50, the IRS corrected what many observers saw as shortcomings of the CARES Act.

Other Important Provisions of Notice 2020-50

  1. The CARES Act requires an employee to certify to her employer that she is in fact a Qualified Individual. The employer can rely on the certification by the employee, unless the employer has “actual knowledge to the contrary”.  There was some confusion whether this imposed a duty on the employer to investigate the truth of the employee’s certification.  Notice 2020-50 says that this requirement “does not mean that the administrator has an obligation to inquire into whether an individual has satisfied the conditions . . .”  Rather, an employer may not rely solely upon the certification of the employee only if the employer “already possesses sufficiently accurate information to determine the veracity of a certification”.   In addition, Notice 2020-50 provides sample language for an acceptable certification.
  2. As stated above, the CARES Act provides somewhat of a tax holiday to a Qualified Individual. While a distribution from a qualified retirement plan is generally includable in taxable income in the year of distribution, the CARES Act permits a Qualified Individual to include a CRD in taxable income ratably over a three-year period.  Notice 2020-50 clarifies that this is an election on the part of the Qualified Individual.  The Qualified Individual may choose instead to include the entire CRD in taxable income in the year of receipt.  However, this election may not be changed.  All CRDs must be treated in the same manner as reflected on the Qualified Individual’s 2020 tax return.
  3. The CARES Act also permits a Qualified Individual to recontribute a CRD to a qualified retirement plan. Unlike the tax treatment of a CRD, whether a CRD will be recontributed to a qualified retirement plan, or the manner in which it will be recontributed, does not have to be determined before the filing of the Qualified Individual’s 2020 tax return.  Notice 2020-50 says that the decision can be made at any time during the three-year period and provides for the filing of amended returns to reflect the recontribution of all or a portion of the CRD,

In Notice 2020-50, the IRS expanded many of the rights created by the CARES Act.  This does not often happen.

To learn how your qualified retirement plan is impacted by the CARES Act or Notice 2020-50, call your RMC representative.

Categories
Personal Insurance Retirement Plans

7 Ways to Improve Your Finances During Financial Literacy Month

April is tax season, so a lot of people are thinking about their finances these days. But if you’re like most people, you’re probably thinking in the short term: What’s my refund going to be—or how much do I owe? And what is that going to do to my monthly budget?

It’s good to be thinking about those things. It’s also important to look at the bigger picture. Financial Literacy Month, which is also in April, gives you the perfect chance to do just that. Surveys have showed that an alarming number of Americans lack even basic financial knowledge; in an era when we collectively have trillions of dollars in consumer debt, and many people live paycheck to paycheck, that can be a recipe for disaster.

But it doesn’t have to be that way! This Financial Literacy Month website, created by nonprofit credit-counseling firm Money Management International, features tools and resources to help you understand your finances better and build a bright financial future. In that spirit, we’ve come up with seven tips that can help you become more savvy with your money. Some are easy things you can do today. Others might take a little more work. But all are worth the effort!

  1. Make your saving automatic. It’s important to have money set aside for emergencies—and to save for retirement. But once your paycheck hits your account, it can be a lot easier to just spend it all. The solution? Schedule automatic transfers to a separate account for your emergency fund, your retirement plan, or both. Start with something like 10%. You might even find that you don’t miss it.
  2. Pay your credit cards off every month. If you can’t do this now, pay them down until you can. One popular way is the “snowball” method, which in a nutshell, works like this: Make only the minimum payment on all of your debts—except the smallest one. Put as much money as you can toward that. When the smallest debt is paid off, repeat the process and continue until everything is paid!
  3. Check your tax withholding. People love getting big tax refunds, but that really means you’ve loaned the government your money over the course of the year—interest-free. For example, instead of a $2,500 refund in April or May, you could have more than $200 extra in your paycheck every single month. Wouldn’t that be nice?
  4. Don’t throw away free money. Who would do that? Well, you—if your employer offers a match on your retirement savings and you don’t contribute enough to get the full amount. Say your company matches the first 3% of salary you contribute to a 401(k); you should save as much as you can, but at the very least, you’d want to save that 3%.
  5. Pay less for services. Are you paying more than you should for cable, internet or your mobile service? Maybe not—but you won’t know unless you ask. Often, companies have discounts or special packages available, especially if you’re a loyal customer and you haven’t been on a promotional deal for a while.
  6. Consider a credit card that rewards you. This can be a great way to earn points toward free travel or other rewards, just for buying the things you would buy anyway. Don’t spend more than you normally would just to get rewards, though. And remember, if you regularly carry a balance, the rewards probably won’t outweigh the interest you’re paying. (Go back to item #2 in our list.)
  7. Track your spending for a while—and then review it. You probably spend money on a lot of little things without realizing how much it adds up. Maybe you get takeout for lunch a couple of times a week, or stop for coffee every day on your way to work. Try tracking everything you spend for a month or two. Then, take a look at your habits.

You’ll find areas where you can save, likely without even feeling like you’re making a sacrifice. Insurance is an important tool for your financial well-being, too. Even though it’s easy to think of insuring your car or home as protecting your “stuff,” insurance really protects your finances. After all, insurance can’t prevent your car from being hit by another driver—but it can pay for the repairs, so that money doesn’t come from your pocket.

Take a little time to think about your finances this month, and try one or more of the tips above. As with many things in life, when it comes to money, small steps can have a big impact!

Reposted with permission from the original author, Safeco Insurance®.

Categories
Retirement Plans Technical Memorandum

What Impact Does the CARES Act Have on Retirement Plans?

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020.  It is 880 pages.  This article provides a summary of the some of the key provisions relating to retirement plans.

1. Covid-19 Related Distributions

The CARES Act provides that section 72(t) of the Internal Revenue Code shall not apply to coronavirus-related distributions from certain qualified retirement plans.  This means that a plan participant will not be subject to the 10% penalty for early withdrawal, as long as the aggregate amount of the withdrawal does not exceed $100,000.  The term “aggregate” refers to all plans maintained by the participant’s employer and any member of a controlled group.

Eligible retirement plans include:

  • IRAs
  • Tax-qualified retirement plans
  • Tax-deferred section 403(b) plans
  • Section 457(b) governmental sponsored deferred compensation plans

The exemption from section 72(t) is effective for distributions made during 2020 – calendar year 2020, not plan year 2020.  In addition, the exemption is available only to a plan participant:

  • Who is diagnosed with Covid-19
  • Whose spouse or dependent is diagnosed with Covid-19
  • Who is furloughed or laid off, has work hours reduced or is unable to work due to lack of childcare or is otherwise unable to work due to Covid-19

An employer is required to confirm that the participant meets one of these conditions but can rely on the participant’s certification.

The participant can elect whether to repay the distribution or to have the distribution included in income.  If the participant elects to repay the distribution, it must be repaid in full within three years after the date the distribution is received.  A participant who elects to not repay the distribution is taxed on the distribution ratably over three taxable years beginning with the year of the distribution.

2. Plan Loans

The CARES Act increases the amount of loans that a “qualified individual” can take from a retirement plan.  Beginning on March 27, 2020, for a 180-day period, the loan amount is increased to the lesser of $100,000 or 100% of the participant’s nonforfeitable accrued benefit under the plan.  Prior to this change, the amounts were $50,000 and 50%, respectively.

The CARES Act also changes the terms of loan repayments.  If the due date of any loan repayment occurs between March 27, 2020, and December 31, 2020, the due date is extended for one year.  Subsequent due dates are extended for one year as well.

An employer may need to amend its plan document in order to provide these enhanced rights to its employees.

3. Required Minimum Distributions

The CARES Act provides a temporary waiver of required minimum distributions for participants who turn age 72 in calendar year 2020.

4. Minimum Required Contributions

The CARES Act delays the due date of any employer-contribution to a defined benefit plan required to be made during calendar year 2020 to January 1, 2021.  However, any delayed payment accrues interest from the original due date to the date of payment.  In addition, an employer may elect to treat the plan’s adjusted funding target attainment percentage (“AFTAP”) for the last plan year ending before January 1, 2020, as the AFTAP for the plan year, which includes calendar year 2020.

5. Filing Deadlines

The CARES Act gives the Department of Labor the right to extend any filing deadline under ERISA for a period of one year as a result of the Covid-19 pandemic.

6. Education Assistance

The CARES Act amends section 127(c) of the Internal Revenue Code to include repayment of an employee’s qualified education loan in the definition of non-taxable “educational assistance”.  The payments must be made before January 1, 2021, and are limited to $5,250.

7. Plan Amendments

Some of the provisions of the CARES Act are voluntary, not mandatory.  For example, the provisions regarding coronavirus-related distributions and increased loan amounts apply only if the plan document permits such distributions and loans in the first place.  As a result, a Plan Sponsor may need to amend its plan document in order to afford its plan participants the ability to access such distributions and loans.

A Plan Sponsor can administer the plan in accordance with the necessary amendments, even before the amendments are actually adopted.  However, the amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2022.

8. PBGC

The PBGC has announced the extension of filing deadlines, including premium payments.  Any filing due after April 1, 2020, can be delayed until July 15, 2020.  While this is not part of the CARES Act, it is something that affects defined benefit pension plans.

Some of these provisions will require further guidance, and we will update you as that guidance is issued.  If you have any questions how the CARES Act affects your qualified retirement plan, contact RMC Group.

*Revised April 21, 2020

Categories
Retirement Plans

The SECURE Act of 2019

On December 20, 2019, President Trump signed into law the Setting Every Community Up For Retirement Enhancement Act of 2019 (the “SECURE Act”).  The SECURE Act is probably the most significant piece of retirement legislation since the Pension Protection Act of 2006.  Here are a few of its most relevant provisions.

  1. Increasing the Age for Required Minimum Distributions

Under current law, participants are required to begin taking minimum distributions from a retirement plan beginning the later of (i) April 1 of the year after they turn 70½ or (ii) the year in which they retire.  The SECURE Act raises the age for required minimum distributions to 72.  This change in law applies to individuals who turn 70½ after December 31, 2019.  It does not affect people who have already begun receiving their required minimum distributions or who turned 70½ last year and are, as a result, required to begin taking distributions by April 1, 2020.

  1. Elimination of “Stretch IRA”

Under current law, if the beneficiary of a decedent’s IRA was a so-called “designated beneficiary”, the beneficiary could take required minimum distributions from the IRA over the lifetime of the beneficiary.  Under current law, the term “designated beneficiary” could include the decedent’s adult children.  Under the SECURE Act, most adult children will no longer be considered a “designated beneficiary”.  As a result, distributions from the decedent’s IRA must be completed within ten years of the death of the decedent.  A decedent’s spouse is still considered a “designated beneficiary”.

  1. Coverage of Part-Time Employees

Under current law, an employer can exclude any employee who does not work at least 1,000 hours in a year.  The SECURE Act changes the law for 401(k) plans.  Under the SECURE Act, a 401(k) plan will be required to permit any employee who works at least 500 hours for three consecutive years to contribute to the plan.  The SECURE Act does not change the rules regarding employer contributions to a 401(k) plan.  So, employers are not required to make contributions for these so-called “long-term part-time employees”.

This change in the law goes into effect beginning in 2021.  This means that the soonest that a long-term part-time employee must be allowed to contribute to a 401(k) plan is 2024.

  1. Lifetime Disclosure Requirements

Under current law, there is no incentive for sponsors of defined contribution plans to offer a lifetime annuity distribution option.  The SECURE Act encourages the use of a lifetime annuity distribution option by requiring sponsors of defined contribution plans to provide a “lifetime income disclosure” on a participant’s benefit statement at least annually, even if the plan does not offer a lifetime annuity distribution option.  The disclosure is an estimate of a participant’s monthly benefit, if the participant were to elect a qualified joint and survivor annuity or a single life annuity.

The Secretary of Labor is required to issue a model disclosure by December, 2020.  This requirement becomes effective no more than one year after the Secretary has issued the model disclosure.

  1. Annuity Safe Harbor

The second way in which the SECURE Act encourages the use of annuity contracts by defined contribution plans is by providing a fiduciary safe harbor for plan sponsors.  The decision whether to offer an annuity option in a defined contribution plan occurs before a plan is adopted.  As a result, the decision to offer the annuity option is not a fiduciary act.  However, the selection of the annuity provider is a fiduciary act, and a plan sponsor could be held liable for the financial well-being of the annuity provider.  The SECURE Act provides a safe harbor for the plan sponsor as long as the annuity provider represents that, for the prior seven years and on a going-forward basis, the annuity provider (i) is licensed by a state to offer guaranteed retirement income contracts, (ii) files audited financial statements, and (iii) maintains sufficient reserves to satisfy the requirements of all states where the annuity provider conducts business.  This safe harbor is available effective January 1, 2020.

  1. Earliest Age for Distributions from Defined Benefit Plan

Most defined benefit plans permit distributions to a working employee upon attainment of a certain age.  Prior to 2006, that age was 65.  After 2006, that age became 62.  The SECURE Act permits in-service distributions to employees as early as the attainment of age 59½.  This is not a requirement, but a plan provision that an employer can adopt.  It becomes effective beginning after December 31, 2019.

  1. Adoption of Plan after Close of Tax Year

Under current law, an employer must adopt a qualified plan by the end of its tax year in order to deduct its contributions to the plan for that tax year, even though contributions do not have to be made until the due date, including extensions, of its tax return for such year.  So, for example, an employer would have had to have created its plan by December 31, 2019, in order to deduct its contributions in 2019, even if the contributions are not actually made until September 15, 2020.  The SECURE Act changes this and provides that the plan can be adopted as late as the due date, including extensions, of the employer’s tax return.  This change is effective for tax years beginning after December 31, 2019.

  1. Pooled Employer Plans

One of the reasons that a small employer might hesitate to adopt a qualified plan is the costs inherent in set-up and administration.  Large employers have greater negotiating power and are able to reduce their costs.  Current law permits unrelated employers to come together under a single plan as long as there is some “commonality of interest” among the employers.  Under current law, “commonality of interest” requires that the employers be engaged in the same industry or share a common geographic location.  The SECURE Act permits unrelated employers to participate in a “pooled employer plan”, even without this so-called “commonality of interest”, as long as the plan has a single trustee, named fiduciary, and administrator and offers the same investment options to all plan participants.  This provision becomes effective for plan years beginning after December 21, 2021.

  1. 401(k) Safe Harbor Plans

There are two ways to create a safe harbor 401(k) plan.  The first is through a matching employer contribution.  The second is through a non-elective employer contribution.  Under current law, a safe harbor 401(k) plan must be adopted before the beginning of the plan year and the employees must receive notice of the adoption of the safe harbor plan before the beginning of the plan year.  The SECURE Act changes the rules with respect to a non-elective employer contribution safe harbor plan.  It eliminates the requirement that participants receive notice prior to the start of the plan year.  In addition, it permits a non-elective safe harbor plan to be adopted at any time during the plan year.

  1. Penalty for Failure to Timely File Form 5500

In order to pay for some of these provisions, the penalty for failure to timely file the Form 5500 was increased to $250 per day with a maximum of $150,000.  For obvious reasons, it is vital that a plan sponsor choose its plan administrator wisely.

Categories
Retirement Plans

Pension Dates to Remember for 2020

Pensions have key dates for filing and disclosures that a plan trustee should be aware of. See below for a list of those key pension dates.

2018 Pension Dates

Categories
Retirement Plans

5 Reasons to have a Qualified Retirement Plan – Even If You are a Sole Proprietor

You are a successful business owner. You put a lot of hard work into building your business, and you are finally reaping the benefits. However, there may come a time when you’ll want to step back and triumphantly wash your hands of the business. How do you intend to plan for your financial needs in retirement? 

Many business owners plan on using the sale of their business to fund their retirement. However, they usually don’t take into consideration the additional costs associated with the sale of a business. Expenses such as tax liabilities and brokers’ fees can eat away at the funds you planned on using in your retirement.

Having a qualified retirement plan through your business can help you provide for your retirement.  In addition, it can potentially save you thousands in tax liabilities and benefit both your business and the people who work for it—even if you’re the only one. 

Are these plans the right choice for your business? Before answering this question and looking at potential options, let’s define what it means to have a qualified retirement plan. 

What is a Qualified Employee Retirement Plan?

A qualified retirement plan is one that meets the criteria set forth in section 410(a) of the US federal tax code and the guidelines established by the Employee Retirement Income Security Act (ERISA). These guidelines were established in the 1970s in order to secure workers’ retirement income.

Many companies offer non-qualified plans as part of their total benefits package in the form of deferred compensation or executive bonuses, but these programs have their drawbacks. Contributions to these plans are taxed before they are deposited, reducing the overall amount you have to save.

In contrast, contributions to a qualified retirement plan may be tax-deductible by the employer.  In addition, the contributions are not taxable to the employee when made and grow tax-free until withdrawal, when they are taxed to the employee.  In order to be a qualified retirement plan, a plan must comply with the rules set forth in section 401(a) of the Internal Revenue Code.

Any company can qualify to offer some type of qualified retirement plan. The most common of these plans for single-employee businesses are defined-contribution plans, generally because business owners assume this is their best option. 

Under a defined contribution plan, an employer makes a certain contribution for its employees, and the retirement benefit depends upon the performance of the plan’s investments. The employees are not guaranteed a specific benefit. The most well-known type of defined-contribution plan is the 401(k) plan, which allows employees to make pre-tax contributions to the plan. Often an employer will match a portion of the employees’ contributions.

Despite the popularity of defined contribution plans, they’re not always the best option for single owner businesses—especially for those with no other employees, a high income, and a desire to save a lot on an ongoing basis. For this kind of business, a defined benefit plan could be the best option.

Before we discuss the five main reasons why you should have a qualified retirement plan, you need to understand the types of plans that are available to you.

What Is a Defined Benefit Plan?

A defined benefit plan is a qualified retirement plan that defines the benefit to be paid to an employee after retirement.  The employer is then required to make contributions to the plan in an amount sufficient to fund the employee’s retirement benefit. Contributions may vary from year to year.  This is different than a defined contribution plan where the annual contribution is determined by formula, but the amount of the benefit may vary depending upon investment performance.

There are limits to how much an employer can contribute to a defined benefit plan.  These limits are determined based on the ages of the employer’s employees, expected investment returns, and the overall benefit to be paid by the plan at retirement. However, a defined benefit plan has higher contribution limits than a defined contribution plan. A defined benefit plan is ideal for small businesses with few employees looking to maximize their annual contributions and retirement benefits.

Now that we’ve covered the basics, let’s explore the five reasons you need a qualified retirement plan.

Reason #1: Tax Advantage

One of the main benefits of offering a qualified retirement plan is the potential tax savings. For many business owners, the idea that they’re obligated to make annual contributions to a qualified retirement plan is a turn-off. It’s a major commitment of funds. 

However, many contributions to qualified retirement plans are tax-deductible. Whatever contribution you make annually to a qualified plan can possibly be written off, reducing your business’s overall tax burden. This is one reason that plans like 401(k) plans are popular, but it also goes for defined benefit retirement plans like pensions. 

In addition, an employee does not pay income taxes on the contribution until distribution of his benefit after retirement. This means that you, as a business owner, can take advantage of two tax savings, while managing to save sufficient funds for a comfortable retirement.

Reason #2: Attract Top Talent

If you’re looking to hire some help with your business, offering a retirement plan for employees will attract high-quality talent to your organization and give them an extra incentive to stick around.

Larger companies that don’t offer qualified retirement plans appear lackluster to potential workers because most major companies do, in fact, offer some kind of plan. On the other hand, for small businesses, a tremendous opportunity exists to elevate themselves above the competition by offering something that many smaller firms don’t.

No matter the size of your business or firm, offering retirement solutions and pension plans can make sure you have only the best talent working for you.

Reason #3: Your Employees Need It

As an employer, you already do a tremendous service to the economy by providing needed goods and services and creating jobs. You can add to that service even further by helping to solve the retirement issue many people face—just give them a concrete solution to the issue.

According to a report by the Center for Financial Services Innovation, 42% of Americans aren’t saving anything at all for retirement. If more employers offered qualified, tax-deductible plans, it’s safe to assume that more people would save for retirement.

Reason #4: You Need It

As a business owner, you need retirement savings just as much as your employees do. When you offer a qualified retirement plan through your business, you can enroll as well. The retirement crisis is not just happening among workers. Somewhere around half of all small business owners only save 10% of their income for retirement. One out of four doesn’t save anything at all.

Without an established retirement plan in place, business owners are generally faced with one option: sell the business to fund retirement. This tactic comes with a lot of uncertainties, including the possibility of a lower-than-expected asking price, or having tax burdens eat into your nest egg. Without a plan, you will be under-prepared at a point when there won’t be much time to act otherwise.

Reason #5: You Can Save a Lot

While qualified retirement plans may seem pricey to set up and maintain, they come with the benefit of high limits to contributions. Individual business owners making more than $80,000 a year can save a good portion of those funds in a defined-benefit plan, making these plans ideal for high-income business owners who are nearing retirement.

You can even start saving money by just setting up a plan. For the first three years, businesses get a $500 tax credit in exchange for initiating a plan. 

For business owners, setting up a qualified retirement plan is a crucial step in preparing for a comfortable retirement. Without one, you may not have the resources available to provide for yourself if the unexpected happens. 

Now that you know why you need a qualified retirement plan, it’s time to take the next step. Contact an RMC professional today to determine the best way to set yourself up for the future.

Categories
Retirement Plans

9 Questions To Quickly Identify Pension Prospects in 2019

[x_video_embed type=”16:9″][/x_video_embed]

 

[Transcript]

Is a qualified retirement plan appropriate for your clients? Let’s find out.

Just ask them a series of questions, any of these questions will help determine if they’re good suitable candidates.

First, is your client a business?

They have to be a business in order to benefit from a qualified retirement plan.

Now, any type of business structure qualifies to establish a plan.

That’s C Corps, S Corps, LLC’s, Partnerships, even Sole Proprietors.

There’s many types of employee benefit plans that Sole Proprietors cannot take advantage of, however with a qualified retirement plan any business structure can take advantage of this.

Are they a small closely held business?

Small closely held businesses these are ideal candidates for qualified retirement plans.

Now, middle and larger size business can benefit as well, but small closely held businesses are absolutely perfect for this type of plan.

Is the business profitable?

Are your clients looking for a more efficient vehicle for their surplus profits?

Are your clients earning more money than they need to live on?

If any of these questions are true, if any of these answers to these questions are “yes,” then a qualified retirement plan can absolutely help your clients.

Let me ask you another question that you should ask your client, will a significant benefit in their retirement years, and by significant, I mean up to two hundred and twenty-five thousand dollars a year ($225,000).

That’s two hundred and twenty-five thousand dollars annually, or eighteen thousand seven hundred fifty dollars ($18,750) a month, do you think that would be appealing to your client?

How about another question, if you could provide this benefit and do it all on a tax advantage basis, do you think that would be appealing to your client?

If you could tell your client we can absolutely guarantee a benefit for them, do you think that would be appealing to them?

And these plans exist, we can provide you a plan that has absolutely no market risk on their investment. Do you think that would be appealing to your client?

If you or your client has answered yes to any of these questions then please contact us so we can help you with a qualified retirement plan.

Categories
Retirement Plans

Who is a Candidate for a Retirement Plan?

[x_video_embed type=”16:9″][/x_video_embed]

 

[Transcript]

Let’s face it our clients can always use more planning help.

Do you have profitable businesses that are looking for better solutions?

Perhaps they’ve already paid their salaries.

They’ve already done their year-end bonuses.

Maybe they’ve already done capital improvements into the business.

BUT they still have surplus profits

They’re still looking for ways to spend that money creatively and effectively and tax efficiently at the end of the year.

Do they already have enough money to live on?

What do you tell these clients?

What solutions do you present to them?

A qualified retirement plan could be a perfect solution!

Let’s take a look at some real numbers…

Perhaps it’s a 401(k) plan where the employee can defer up to $19,000 and salary on a tax efficient basis. An additional $6,000 if they’re over age 65.

Maybe they need more…

Perhaps a profit sharing plan where they can put away and this is the business putting away all in a tax favored basis that can do up to $56,000 a year…

…or maybe they need even more…

Maybe a defined benefit plan will help them.

In a defined benefit plan, let me give you an example…

For example at age 55, a business on a tax favorite basis can put away anywhere from $200,000 to $500,000 depending on the type of plan.

And that is annually!

That is huge and on the benefit side that contribution can provide a benefit of up to $225,000 a year…

And that’s every year for the rest of their life!

These are absolutely compelling benefits.

These are incredible benefits, very meaningful to the clients.

Perhaps the client wants to control their own investment.

It’s in a traditional defined benefit plan or maybe they have a lot of employees or they have multiple owner employees with bearing ages and a cash balance plan award from.

Or maybe they are interested in guarantees only and they want to eliminate all market risk and they can go with a fully insured 412(e)(3) plans.

Talk to us, talk to your clients. Allow us to help you help them!

Contact us today and learn more.

How we can help you and your clients with qualified retirement plans?