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IS YOUR RETIREMENT PLAN BROKEN?

A silent transformation has occurred in the area of retirement plans. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) made tremendous changes. More than 60 provisions relate to small businesses and make retirement plans a more viable option. Many money saving possibilities are now available. Informing everyone about this quiet revolution is our goal so professionals and business owners can tailor their plans to realize their goals and objectives. EGTRRA has given the opportunity to save more money than before. If you have the plan design that will not allow you to save significant dollars, then you have a broken plan.

HOW DO I KNOW IF MY PLAN IS BROKEN?

A broken plan is like a V-8 engine with only four cylinders working properly. Yes, the car still moves, and it may meet the driving code requirements. Unfortunately, the car is not nearly as efficient as it could and should be. The same is true of broken plans. If a plan doesn’t work well, it is broken. Broken plans do not meet the needs, goals and objectives of the client in the most cost effective way. Some questions to ask yourself or your accountant are: Is my plan maximizing the allowable contribution limits? Is it costing too much in administration costs every year? Do I have a retirement plan expert to evaluate what I am doing and possibly show me a better way?

Periodic retirement evaluations are always a good idea to ensure that your retirement plan is the right plan to help you achieve your goals. A current assessment may produce valuable benefits for you because of EGTRRA. Many business owners are not in plans that will maximize the benefits to themselves and their employees.

For instance, in a recent conference call with an accountant and a business owner who had a SEP, the owner said; “I really dislike putting the same percentage of money in for my employees as I do for myself and my husband.” In this case, a 401(k) may be a better option for business owners like this one, because they do not have to fund each employee the same. The owner has the possibility of making a matching contribution, a basic discretionary contributions or making an elective deferral as well.

If you have not reviewed your plan since EGTRRA, you may need to review it to make sure that you still have the best plan for your goals and needs. If you do not have an existing plan, or if you do not have the right plan, you may need to see what’s out there because it could be costing you money.

For example, a couple attended a retirement plan meeting in Las Vegas, NV. They found that they could add $16,000 each in addition to their defined benefit plan for a total of $32,000 more towards their retirement.

Some plans are broken, others have costly administration fees, and some plans may cost unnecessary tax dollars. Some plans may serve your goals and objectives better than your present plan. What ever the reason, every owner deserves a complete second look. Professionals and business owners may need to re-evaluate, and get a qualified second opinion of their current retirement plans.

SEPs AND SIMPLE PLANS CAN SEVERELY LIMIT OPTIONS

SEPs and Simple Plans can severely limit options for owners. They have numerous draw backs. With SEPs, the same percentage contributed for the employer has to be contributed for each participating employee. Also, there is immediate vesting with SEPs. This means that regardless of their value to the company every employee can take their retirement plan with them when they leave. With Profit Sharing plans, employers can motivate employees to stay longer at a firm, and their vesting schedule could be over a few years, not immediately. This creates what is considered to be “Golden Handcuffs”. This vesting feature of a retirement plan match is lost with both SEPs and Simple IRAs. SEPs have no catch-up provisions and participants are limited on how much they can contribute. The Simple Plan has drawbacks similar to the SEP.

There are other options available now because of EGTRRA. If you compare the SEP with the Profit Sharing plan, for example, the amount of money that owner may receive with the Profit Sharing plan could be a maximum of 83% of salary, and they are not subject to a vesting schedule. With the SEP, the owner could only get 50% of salary, and they are subject to immediate vesting.

HOW DO I FIX A BROKEN PLAN?

Obtaining a qualified second opinion with an advisor knowledgeable in retirement plans is a great start. This will give you expertise, solid recommendations, and help you determine if your plan is broken. A second opinion will help you determine if your current plan is meeting your business and retirement needs. Many financial professionals do not concentrate on retirement plans, but focus on investments and other financial services. To ensure that you get the most knowledgeable assistance, it is recommended that an advisor specializing in retirement plans be consulted.

For instance, your primary care physician said that you needed a quadruple by-pass. Since it is such a serious procedure, wouldn’t you consult with a specialist before agreeing to the surgery? Wouldn’t you want the surgeon to be a specialist and to be experienced in heart surgery? In the same way, acquiring a specialized, experienced and independent second opinion is needed to ensure you receive the best counsel possible. This may prove to be beneficial to you, save you fees, significant tax dollars, and show you how to put away thousands of dollars more a year toward your retirement.

For example, a doctor reviewed two defined benefit plans. In the first plan, the doctor could put away $150,000 annually. In the second plan, he could put away $400,000 annually. In five years, he could put $2 million into his plan. Then, after five years, he could transfer all of the money to his self directed IRA, tax free.

You may also qualify for business tax reductions, different loans, and catch–up provisions. Tax liability could be lowered. Significant tax advantages are another benefit. Retirement plans offer other benefits as well. EGTRRA laws provide for those self employed and business owners looking to substantially reduce taxable income and simultaneously save for retirement.

HOW MUCH MONEY WILL THIS COST ME?

Some consultants and financial advisors may charge thousands of dollars for a qualified second opinion. Some may charge outrageous fees for services that lack appropriate levels of knowledge and expertise needed to properly evaluate and recommend retirement plan(s). EBC, Inc. can provide this service to you free, with no obligation, and with the accurate knowledge and experience necessary.

HOW EGTRRA HAS HELPED IN RETIREMENT PLANS

REAL LIFE EXAMPLES

A Certified Public Accounting firm had over three million dollars in their plan. The broker who sold it to them met with the senior partner. The senior partner asked, “Is everything okay?” (This implied that their retirement plan was in compliance.) The broker responded, “Yes, everything is okay.” The firm was charged for that time, only to find out that the plan was not right. It failed many 401(k) tests, and the partners would have to take a refund or put in more money for the highly compensated employees. A representative from a different company came with a new proposal for them that would save thousands of dollars. The representative’s company focused on finding the correct plan for that firm. The Safe Harbor 401(k) provided the ideal strategy for this company. They were able to avoid restrictions, penalties and limitations that their current plan offered.

A professor had a $40,000 SEP that he had maximized. As an author, he made extra money, and needed tax deductions. He was able to put $260,000 into a defined benefit plan from his side business. By consulting with a financial professional who focused on retirement plans, the professor was able to save significant tax dollars and better prepare for his future retirement.

HOW DO I FIND OUT MORE?

EBC, Inc. is dedicated to helping clients save money, pay less in taxes, and ensure that their goals and objectives are met through properly designed retirement plan(s). This allows clients to live the life for which they worked so hard.

We are here to help you get the best information possible and to provide a thorough review of your specific situation with a qualified second opinion. EBC, Inc. is offering this review of your current retirement plan(s) and/or consultation in selecting an appropriate plan for your business to you free, with no obligation.