Sample Qualifying Questions for Retirement Plan Opportunities – Business Owner Focused

What are you currently doing to reduce taxes for yourself and your business?

  • Personal deferrals the business owner makes reduces their taxable income, and any employer contributions or plan expenses are deductible for the business.

What is your exit strategy and what steps have you taken to prepare?

  • Retirement plans can be a cost-effective and tax-efficient way to transfer a significant amount of assets from the business into the owner’s personal retirement account.

When is the last time you reviewed your plan’s design to ensure it still makes sense for you and your business?

  • Optimal plan design should net a positive outcome for the business owner. Retirement plans are not just a tool to recruit and retain employees, they are a valuable financial planning tool for the owner as well.

Other cues to look for:

  • Make too much for a Roth? Can defer up to $18k with $6k catchup in Roth via 401(k)s.
  • Variable cash flow? The owner can borrow up to 50% ($50k max) of their account value for a rainy day. They pay themselves back with interest.
  • High liability profession? ERISA protected vehicles are sheltered from creditors and bankruptcy.
  • Current plan is too costly and administrative burden? They may be aligned with the wrong service providers (inefficient plan design, inadequate support, overpriced, etc.).

Who’s a good fit for what?

  • 401(k)s: Business owner or HCEs who want to contribute more than a SIMPLE will allow but have non-family member employees.
  • Defined Benefit/Cash Balance: Will enable a business owner to defer significantly more than a 401(k) with Profit Sharing alone will allow. A great succession planning tool. Can count other income than W2. Company should make at least a 3-5 year commitment to the plan. Best for companies with around 30 employees or less. Also known as a “golden parachute”.
  • ESOPs: Great way for the owner to get liquidity from the business and to allow employees to have a personal interest in the company’s success. Best for companies with at least $3M in annual revenue and more than 30 employees. Owner gives up shares of ownership to employees.
  • Non-Qualified: Not business owner focused, rather a tool for retaining valuable executive talent. Also known as “golden handcuffs”.

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