DEFINED BENEFIT PLANS

Powerful Retirement Plan with Huge Tax Savings

Defined Benefit (DB) Plans allow clients higher yearly retirement contributions having tax strategies with the potential for saving huge amounts in taxes. This program is designed for small businesses with one to five employees. Depending on the situation, business owners may be able to save over $2 million for retirement plans in just 10 years to fund plan benefits. The plan’s open architecture allows assets to be invested in mutual funds, bonds, equities, annuities, or any other marketable securities that you and your clients select.

Client Benefits

• Highest allowable contributions to a qualified plan – $100,000 or more
• Annual tax savings of $40,000 or more
• Investments grow tax-deferred to fund plan benefits
• Potentially increases income in retirement
• Tax-free roll over to an IRA at retirement (or at plan termination)
• Low yearly fee and one-time set-up charge

What is an ESOP?

An ESOP (Employee Stock Ownership Plan) is a Defined Benefit Plan created under ERISA (Employee’s Retirement Income Security Act of 1974). An ESOP is best suited for private (non-publicly traded) corporations with a minimum of 25 employees and with payroll exceeding $1mm per year (exclusive of the owner(s)) – the larger the company, the more beneficial the ESOP. In addition, the company must be profitable, paying tax, not heavily in debt and have a substantial EBITDA. The company should also have highly capable secondary management to employ these tax strategies.

Did you know?

An ESOP provides a retirement plan that is tied to the value of the Company’s stock. The employees pay nothing for this benefit, but are greatly incentivized by it. At death, retirement, permanent disability or termination (following vesting), the employee will ‘PUT’ his/her stock to the ESOP for repurchase. The employee will be paid fair market value for the stock with no more than a five year payout. An ESOP effectively puts “golden handcuffs” on employees – they want to stay with the company to retirement.

Tax Advantages of an ESOP

There are five specific tax advantages to an ESOP that are NOT otherwise available:

• The Company can deduct the entire purchase price of any stock it acquires.
• The Company can purchase capital goods and write them off twice.
• The Company can purchase another Company and deduct the entire purchase price of the acquired Company.
• The Company can restructure existing debt and pay it off with pre-tax dollars.
• A Shareholder in an ESOP Company can sell his shares to the ESOP and avoid paying capital gains tax (if a ‘C’ Corp).

If you would like to save more on a tax-deductible basis than you can with Simplified Employer Pension Plan (SEP) or a profit sharing plan (i.e., $53,000 annually) tax strategies, a pension plan may be right for you.

A pension plan allows you to save for retirement on a tax-deductible basis. This means that you do not have to pay current income taxes on deposits put into your pension plan. This results in more money working for you to retirement.

Investments made within the plan grow without any current income taxes. This allows your money to generally grow faster than personal, after-tax savings which require taxes to be paid each year.

The pension plan allows you flexibility as to when you withdraw money out of your plan. You pay income tax on only the portion of funds you withdraw. The balance continues to grow inside the tax sheltered plan. Upon reaching age 70 ½, a small minimum distribution must be taken from your pension plan. For example, at age 70, this minimum is less than 4% of your total accumulated retirement account, but the minimum does grow each year.

The plan may also provide a valuable life insurance benefit which provides income tax free life insurance benefits to your beneficiary at your death.

There are so many options when considering tax strategies. Contact us today to hear options for your company.