Each year at this time we are reminded about those “year end checklists” that can help our businesses, strategically and fundamentally. Be they major or minor, actions we take near term can have a decided positive or negative affect. Your retirement plan strategy is also worth a look before year-end, to be sure whatever plan you have in place continues to meet your individual and corporate objectives.
Often times the original plan and strategy you implemented gets away from your intended goals. Every year you are closer to retirement, especially when beyond age 50, opens up more plan design options and strategies that were not available when you are in your 30’s and 40’s. 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. These possible changes to your company’s demographics 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 plan type option for you. Often times companies start out with SEP’s or SIMPLE 401k plans which are great strategies when first starting a retirement plan, but may out grow their benefit 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.
As we head into 2014, the deferral total contribution limits will not be changed. You can defer $17,500 into a 401k plan, with a $5500 catch-up provision if over age 50. That’s generally the best first thing to try and accomplish. If your plan demographics are suitable, meaning staff is younger than the owners, principals or partners (HCE’s), 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 $51000/$56,500 maximum annual limits from combined employee and employer contributions.
If your income permits doing so, you are over age 50, 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 102,000 at age 45 to 237,000 at age 62. 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 retirement plan strategy for you today 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 CEO of America’s Best 401k. He has helped over 2800 businesses obtain a new or improved retirement plan over the past 13 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]
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