Choosing a retirement plan for your business 2013

Choosing a Retirement Plan for Your Business

Michael GiannettiAgent, New York Life Insurance Co.

777 Main St, Suite 3300Fort Worth, TX 76102

(817) [email protected]

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SMRU500010(exp. 12/31/2014)

Choosing a Retirement Plan for Your Business

Choosing a Retirement Plan for Your Business 2

This is intended to be an overview of types of Retirement Plans only and should not be viewed as legal or tax advice. New York Life Insurance Company, it’s affiliates, employees and agents do not provide tax and/or legal advice.

Tax-Qualified Retirement Plans must generally comply with the Employee Retirement Income Security Act of 1974, as amended (ERISA), the Internal Revenue Code of 1986, as amended and other applicable law. For this reason, you should consult with tax advisors and attorneys expert in these matters before establishing a plan.


Important Tax Disclaimer

This material includes a discussion of one or more tax-related subjects. This tax-related discussion was prepared to assist in the promotion or marketing of the transactions or matters addressed in this material. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding any IRA penalties that may be imposed upon a taxpayer. Taxpayers should always seek and rely on the advice of their own independent tax professionals. Please understand that New York Life, its affiliates and subsidiaries and agents and employees of any thereof may not provide legal or tax advice.

Agenda

• The small business marketplace

• Why business-owners should consider retirement plans for themselves and employees

• Benefits of offering a retirement plan

• Types of plans

• Questions to think about

• Next steps


Your business as your retirement strategy


Risks Affecting the Value of Your Business

• Lawsuits

• Natural Disasters – fire, water damage, etc.

• Non-Natural Disasters – vandalism, terrorism, etc.

• Changing technology

• Changing competition

Your business as your retirement Strategy


Your Retirement Strategy

Tax-Qualified Retirement Plan

+

Your Business

Your Retirement

Strategy

=

Benefits for the Business


Benefits of offering a retirement plan

• Tax advantage

• A competitive advantage over other employers

• Assists in recruiting and retention of employees

• Boosts morale


Tax advantage for the business

•Contributions made by the employer are generally tax-deductible to the business


Tax advantage for the business


This hypothetical example assumes $250,000 Corporate income, 39% federal tax rate. Company A makes no contribution. Company B makes $50,000 plan contribution

$ 30,500Net Cost to Company

19,5000Tax Savings

78,00097,500Federal taxes at 39%

200,000250,000Taxable Income

50,0000Company Contribution

$250,000

$250,000

Corporate Income

Company BCompany A

How a Retirement Plan Reduces Corporate Taxes

Benefits for You and Your Employees


Benefits of a retirement plan to you and your employees• Provides a way to secure an income for

retirement

• Employer contributions are not taxable to the employee until the employee withdraws the money

• The earnings grow tax deferred

• Some plans, such as 401(k)s and SIMPLE IRAs, allow employees to make pre-tax contributions


Benefits of a retirement plan to you and your employees

• Advantage of using payroll deductions* (401(k) & SIMPLE IRA)

• Plan assets are generally protected from creditors


* Your employee’s participation in the payroll deduction program is completely voluntary.

Tax advantages for you & your employeesEmployer Contributions Can Mean More Retirement Savings


• Employee A works for a company that does not offer a retirement plan

• Employee B’s employer has been contributing $2,500 annually for Employee B

• After 10 years •Employee A has $0.00•Employee B has over $33,000

Retirement Savings for Employee B*

*Assumes a fixed 5% rate of return for the 10 year period for an annual contribution of $2,500.This example is hypothetical and intended for illustration purposes only. It is not indicative of the actual performance of any particular product.

Tax advantages for you & your employees


$ 300$ 0Pretax Advantage

22,10021,800Net After-Tax Amount Available

02,000After-Tax Contributions

22,10023,800After-Tax Wages

3,9004,200Federal taxes at 15%

26,00028,000Taxable Income

2,0000Pretax Retirement Contributions

$28,000$ 28,000Annual Wages

Employee BEmployee A

How Pretax Contributions Can Mean A HigherNet After-Savings Amount Available

This hypothetical example assumes $28,000 annual income, 15% federal tax rate. Employee A saves $2,000 after-tax.

Employee B saves $2,000 pretax through a 401(k) plan or SIMPLE IRA.

Types of Retirement Plans



Defined Benefit Plans - Defines the amount of money you are going to receive in retirement. They are company pensions that provide income for life throughout retirement.

Defined Benefit Plan & Defined Contribution Plan

Each month A check arrives in the

mail

The Defined Benefit Plan provides income

for life throughout retirement


Defined Contribution Plans – defines how much is being contributed to the plan during the working years. The amount of money available to you in retirement is based on the amount you contribute, how it is invested and how long it is invested.

Defined Benefit Plan & Defined Contribution Plan

During your working years you decide how much money you are

investing…

$ $

in order to create

a nest egg.

Depending on investment returns, you

may have a sum of money that you may use

to generate income in retirement.

Types of plans for small businesses


Defined Benefit Plans

Traditional Pension

Defined Benefit Plan•Small Business Profile:

– Owner age 45 or more*

– Few employees, who are typically younger than owner

– Highly profitable business and is expected to remain so

•The employer must make contributions each year

•Contributions are generally 100% tax deductible for your business

•Must comply with the IRC’s rules applicable to qualified plans as well as ERISA

•Defined Benefit plans are more complex and expensive to establish and maintain than other types of retirement plans.


*Because you need to fund a benefit over a relatively short time frame, the contributions would be larger for older age employees

Defined Benefit Plan


Joe, Business Owner 1

Mike, Business Owner 2

Business Owner’s age 25 50

Desired Retirement Age 65 65

Years to Retirement 40 15

Desired Pension benefit $4,000 monthly

$4,000 monthly

Amount needed to provide benefit*

$763,573 $763,573

Annual contribution needed to reach goal (assumes plan balance earns 3%)

Approximately $10,127 annually

Approximately $41,055 annually

*Illustrative purposes only. Should not be construed as a solicitation of any specific product or service. Assumptions are used to illustrate the amount of life time income generated on a monthly basis only. Based on the payout of a Single Life Only Lifetime Income Annuity for a male age 65 as of 1/29/13. Payout amounts for female applicants, who have longer life expectancies are lower.. For other income plans and premiums less than $600,000, the payout rates will be lower. Payouts are subject to change and exclude premium state taxes,

Types of plans for small businesses


Defined Contribution Plans

• SEP IRA• SIMPLE IRA• 401(k)• Profit Sharing• Money Purchase

Defined Contribution PlanSEP IRA

• Business Profile– Typically fewer employees (i.e.: 25 or less)

•Contributions are made by the employer

•The employer decides how much, or whether or not to contribute each year, based on profitability


Employer ContributionsEmployee Pre-Taxed

Contributions

Lesser of 25% of the employee’s compensation (based on a $255,000* maximum compensation) or $51,000* (whichever is less)*for 2013

None

Defined Contribution PlanSEP IRA

• SEP IRAs do not require IRS approval, reporting, or annual discrimination testing

• Immediate vesting of contributions

• Low administrative cost

• Loans are not permitted


Defined Contribution PlanSIMPLE IRA

• Business Profile

– Large number of employees (maximum 100)

– Would like employees to make contributions


Maximum Employer Matching

Contributions

Maximum Employee Pre-

taxed Contributions

Maximum Employee Catch-Up

Contributions (age 50 and older)

•Matching (up to 3%)

•Non-Elective (2%)

Up to $12,000 in 2013

Up to $2,500 in 2013

Defined Contribution PlanSIMPLE IRA

• Immediate vesting for all contributions

• No IRS approval, reporting, or annual discrimination testing

• Low administrative cost


Defined Contribution Plan401(k) Plan

• Business Profile

– Small business on the verge of becoming a mid-cap business

– Large number of employees (typically 50 or more)

– Loan provisions available


Employer Matching Contributions

Employee Pre-tax Contributions

Employee Catch-Up Contributions (age

50 and older)

OptionalUp to $17,500 in

2013Up to $5,500 in 2013

Defined Contribution Plan401(k) Plan

• Non-Discrimination Testing

• Customized plan design options

• Vesting schedule options


Years of Service

Percentage

1 20%

2 40%

3 60%

4 80%

5 or more 100%

• Administrative Costs

Years of Service

Percentage

1 40%

2 80%

3 or more 100%

Defined Contribution PlanProfit Sharing Plan

• Contributions are made by the employer

• The employer decides how much, or whether or not to contribute each year, based on profitability


Maximum Employer Contributions*

Employee Pre-Taxed

Contributions•Lesser of 100% of the participant’s compensation (based on a $255,000** maximum compensation) or $51,000**The maximum employer deduction is 25% of all participants’ compensation**for 2013

None

Defined Contribution PlanProfit Sharing Plan

• Provisions for in-service withdrawals


• Administrative costs


Defined Contribution PlanMoney Purchase Plan

• Fixed contribution percentage


Maximum Employer Contributions*Employee Pre-Taxed

Contributions

• Lesser of 100% of the participant’s compensation (based on a $255,000** maximum compensation) or $51,000**The maximum employer deduction is 25% of all participants’ compensation**for 2013

None

• Failure to make contributions results in funding deficiency penalty

• In-service withdrawals are not allowed


• Administrative costs

Defined Contribution Plan


Joe, Business Owner 1

Mike, Business Owner 2

Business Owner’s age 25 50

Desired Retirement Age 65 65

Years to Retirement 40 15

Annual Contribution $45,000 $45,000

Total Assets at Retirement(assumes plan balance returns an average of 6%*)

$7,382,145 $1,110,263

Hypothetical Example for Illustrative Purposes Only

*The rate of return is hypothetical and not based on the performance of any specific investment. You may earn more or less than this amount based on the actual performance of your investment selections.

Questions to think about

• What type of business do you operate?– Small-Cap

– Mid-Cap

– Type of Industry

• How many employees are at your company?

• What is the age range of your employees?

• Are there any other active retirement plans in place?


Questions to think about

• What is your turnover rate?

• What types of employees would you like to include?*

• Is your company growing? If so, at what rate?

• When would you like the plan to start?– Tax Year?

– Calendar Year?


*This is all subject to IRS coverage and nondiscrimination rules.

Next Steps and Action Plan Evaluations• Complete the evaluation

• Schedule a free, no obligation appointment


*This is all subject to IRS coverage and nondiscrimination rules.

Please remember that this is intended to be a general overview of types of Retirement Plans only. Tax-Qualified Retirement Plans must comply with the Employee Retirement Income Security Act of 1974 as amended (ERISA), the Internal Revenue Code of 1986, as amended and other applicable law. For this reason, you should consult with tax advisors and attorneys expert in these matters before establishing a plan. New York Life, its affiliates, employees and agents do not provide legal or tax advice.

Thank YouMichael Giannetti

Agent, New York Life Insurance Co.777 Main St, Suite 3300Fort Worth, TX 76102

(817) [email protected]

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This seminar is for informational purposes only. You should consult your professional advisors for tax, legal or accounting advice. Choosing a Retirement Plan for Your Business

Choosing a retirement plan for your business 2013

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