By Tom Zgainer, America’s Best 401k
Be they major or minor, actions we take near term can have a decided positive or negative affect on our businesses over the long term. Your retirement plan strategy is something you should revisit annually to be sure whatever plan you have in place continues to meet your individual and corporate objectives.
The plan and strategy implemented when you launched the business may no longer be the best one to help you reach your intended goals. Every year you are closer to retirement, especially beyond age 50, opens up more plan design options and strategies that were not available when you were in your 30s and 40s. You might have had an increase or decrease in staff. And the ages of your employees can also come into play in the design of profit-sharing plan options. Changes to your company’s demographics as the business grows can limit your personal contributions due to required employer contributions, or more positively, open up new opportunities to design a plan that accelerates your personal contributions.
A great reason to go through an annual plan design checkup is to see if there is a better option for your business. Many companies start out with SEP’s or SIMPLE 401k plans which are great strategies when first starting a retirement plan but may no longer be optimal as you add headcount. As you get closer to retirement, generally over age 45, plan types such as a Cash Balance Plan or Defined Benefit plan, can be paired with a New Comparability 401k Profit Sharing plan to rapidly accelerate your personal contribution objectives.
Heading into the 4th quarter of 2019 is a great time to run a diagnostic check on your retirement plan strategy. You can defer $19,000 into a 401k plan, with a $6000 catch-up provision if over age 50. If your plan demographics are suitable, meaning staff is younger than the owners, principals, partners, and you are over age 45, a new comparability profit sharing plan can provide a maximum benefit for a select employee group, while providing the lowest possible contribution to non-key groups allowed by law. This plan design can help you add to your deferrals and get up to the $56000/$62,000 maximum annual limits from combined employee and employer contributions.
If you are over age 50, your income permits, and you would like to rapidly accelerate your contributions, consider adding a Cash Balance or Defined Benefit Plan to the 401k. Maximum contributions for these plans range from over 100,000 at age 45 to well over $200,000 as you turn 60. When added to the 401k/profit sharing contributions, it’s like squeezing 20 years of retirement saving into 10, not to mention the significant reduction to your tax liability as an added benefit.
The process of determining the best current retirement plan strategy is easy and should take little of your time. A qualified pension plan professional can simply take information from a census with your current firm demographics and run a variety of illustrations for you to consider. This should be provided at no cost to you and will at the minimum give you a snapshot to see if there is a better way to proceed into the years ahead for your retirement planning.
Tom Zgainer is Founder and CEO of America’s Best 401k. He has helped over 5000 businesses obtain a new or improved retirement plan over the past 18 years with a focus on strategic plan design to help achieve individual and corporate objectives. You can learn more at www.americasbest401k.com or [email protected].
WO Disclaimer: Consult with a financial advisor or accountant when making personal and professional financial decisions about what is best for your practice.