Every business is unique and every business owner has different goals and objectives when it comes to establishing a qualified plan. Tax deductions, saving for retirement and adding an employee benefit are some of the more common reasons for wanting to establish a plan. But which plan is right for you and your business? By answering a few simple questions, we can help find a plan that will help you attain your goals.
The longer you have to retirement, the more time you have to accumulate savings. The number of years you plan on working may directly impact your contribution goals. A defined contribution plan may be a good option if you plan to retire in more than 20 years. If you plan to retire in less than 20 years and are looking to “catch up” on retirement savings, a defined benefit plan might be a better option.
There are two “types” of qualified plans: defined benefit plans and defined contribution plans. A defined benefit plan requires fixed, annual contributions which can be substantial. A defined contribution plan on the other hand allows for flexible, discretionary contributions. If your business income varies from year to year, a defined benefit plan would not be appropriate for your business at this time. A defined contribution plan that allows flexibility from a contribution standpoint may be more appropriate if your income is variable.
Defined contribution plans define a maximum contribution of no more than $53,000 per participant. If you desire a higher contribution, you may want to consider a defined benefit plan. The contribution to a defined benefit plan is based on age and salary. The older a plan participant is and the closer they are to retirement, the greater their contribution.
If you want employees to have the ability to make contributions to the plan, a 401(k) employee deferral plan may be the most appropriate plan type, as it is the only plan type (other than a SIMPLE IRA) that allows employee contributions. All other retirement plans require the employer to contribute for all eligible employees. However, if you’re contribution goals exceed $53,000 a defined benefit plan may be more appropriate.
Life insurance can be included in any retirement plan. Life insurance would be one of the funding options in the plan. No plan can be 100% funded with life insurance. If you, as the business owner, wish to have insurance in the plan, then insurance must be offered to all employees in the plan.
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
Qualified plans are offered and administered independently of the companies of National Life Group. National Life is bound only by the terms of the life insurance contracts issued by the Group insurance companies. The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
TC91901(0916)P
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
Qualified plans are offered and administered independently of the companies of National Life Group. National Life is bound only by the terms of the life insurance contracts issued by the Group insurance companies. The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
TC91901(0916)P
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
Qualified plans are offered and administered independently of the companies of National Life Group. National Life is bound only by the terms of the life insurance contracts issued by the Group insurance companies. The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
TC91901(0916)P
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
Qualified plans are offered and administered independently of the companies of National Life Group. National Life is bound only by the terms of the life insurance contracts issued by the Group insurance companies. The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
TC91901(0916)P