Retirement Plan Information

Retirement Plan Info

1. Why Do Businesses Adopt Qualified Retirement Plans?

  • To provide owners and employees with deferred income for retirement.
  • To shelter income from high tax brackets.
2. Must The Qualified Plan Include All Employees?
No! By optimizing plan design opportunities, certain employees can be excluded and contributions for others can be limited.
3. How Much Must Be Contributed Annually?

Defined Benefit Plans


A Defined Benefit Plan can provide each participant at the age 65 with a retirement income of up to 100% of compensation, capped by law at a maximum benefit level of $220,000 (adjusted annually for cost-of-living). An actuary calculates the annual required contribution to fund these future benefits. The older the participant is, the larger the contribution. The actuary certifies his determination with Internal Revenue.

Defined Contribution Plans


Businesses may contribute up to 25% of participant’s compensation annually to a maximum of $45,000 per individual. The ultimate benefit at retirement includes accumulated contributions, reallocated forfeitures from the termination of participants who were not fully vested, and investment experience.

Profit Sharing Plans


Allow the business the option to contribute from 0% to 100% of eligible compensation, as defined by the plan document. Plans can be age weighted to reduce contributions for younger employees.

401(k) Plans


Permit an eligible employee to reduce his/her taxable compensation by up to $15,500 (or $20,500 if you are over age 50) by contributing to a plan. These monies are usually placed in self-directed accounts so that each participant can track the investment yield personally. We will work in conjunction with licensed broker/dealers to coordinate the establishment of accounts and means of reporting. A 401(k) plan may be installed even if you already sponsor a maximum defined benefit plan.
4. How Should The Business Go About Establishing A Qualified Plan?
The first step is to analyze your organization and determine the best plan types and options for your situation. This would allow the owner-employee(s) together with the business’ financial advisors to review the costs and benefits of each design.

One factor which influences this decision is the choice of the plan document. An individualized plan can be drafted to maximize benefits for owners and minimize costs for employees. It is then submitted to the IRS for a determination letter.
5. How Should An Existing Qualified Plan Be Evaluated?

Is The Plan Design Still Appropriate?

The initial data and objectives that influenced the original plan selections may not currently be valid. The business’ ability to contribute, the number and type of employees, as well as the incomes and personal needs of the owner are all variables that may have changed since the plan’s inception.

In order to determine which type of plan is best suited to the needs of the business and the owner-employee(s), the following should be considered:

  • current overall financial situation and future plans
  • investment objectives
  • the amount the business is able to or desires to contribute annually
  • the flexibility needed to change the annual tax deductible contribution
  • the ages of the owner-employee(s) and other employees

Does The Plan Provide The Maximum Income-Tax Relief?


Based on the cash flow of the business and the retirement or tax-shelter needs of the owner-employee(s), the tax deductible contributions may be increased by adding plans, changing plans, amending plan formulas, or adjusting options.

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