Background: Two brothers own a construction business. Their spouses work there too with about six other employees. They currently have a SIMPLE IRA program. They had wanted to look at 401(k) plans before but the SIMPLE representative said the complexity and expense made it not worth it for a company that small. They knew there was more they could be doing for retirement, but did not know where to start.
Our Case: One of the brothers works with B&E for personal financial planning. Since his brother’s financial adviser had been the SIMPLE representative, it was always “off limits” for discussion. Upon exploring Traditional versus Roth benefits for our client in his retirement savings, it was determined Roth may better suit them. Their family income limits their ability to do a Roth IRA. Roth savings are not an option in SIMPLE IRA Plans. We really wanted this flexibility and tax diversification for his family’s financial future.
The Question: Did the cost of a 401(k) outweigh the benefits offered? Other than Roth savings, were there other benefits in a 401(k) that were not available in their current retirement plan?
The Results: We installed a 401(k) Plan with Safe Harbor and Profit Sharing Provisions. This allows for much higher savings limits, Roth contributions as well as flexibility in additional company contributions. Complexity disappears when dealing with experts that understand the rules and can communicate them clearly. The company can now control when employees enter the plan and make deferral changes.
Bottom Line: For a company their size, the plan will cost about $1,500 per year to administer. The 401(k) offers a higher savings limit than the SIMPLE IRA and with additional flexibility in contributions they could easily pay for the plan with the tax savings! All employees have enrolled and are appreciative of the “more robust” benefits.
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planners. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc. Business & Estate Advisers, Inc. and B & E Investment Advisers, Inc. are separate entities from ValMark Securities.
The Unintended Gift
