The economic environment and fiscal policies of today are very challenging for the business owner and their employees. All the more reason we should utilize the tax advantages of our retirement plan options. Your retirement plan may not be as efficient as it could be; limiting your contributions, paying more expenses, or underperforming peer investments. It is important that we, as business owners, be diligent in making wise decisions for our businesses and our money. Previous company retirement plans were established in different economic circumstances. Your business goals, model, or workforce demographics may have changed. You may be self-employed, a business owner, or a director of a non-profit organization—in any case, you have the opportunity to have a retirement plan created for the potential benefits of you, your company, and your employees. There are many different types of retirement plans to choose from each with different advantages and disadvantages. Companies and organizations have different entities, sizes, and needs. There are Solo(k)s, SIMPLE IRAs, SEPs, 401(k)s, Roth 401(k)s, Safe Harbors, 403(b)s, TSAs, and Defined Benefit Plans. Before hastily choosing a plan you will want to clearly define your goals. Maximizing Contributions – For most retirement plans your contributions are tax deductible when made. The contributions you make may lower your tax liability. Also, money in the retirement program can grow tax deferred (or, in the case of Roth accounts, potentially tax free). You or your highly compensated employees may have had their contributions limited. Special circumstances may allow you to contribute more to your retirement plan than you previously thought possible. Limiting Expenses – If you have an existing plan are you fully aware of your plan’s expenses? Fees should be transparent. You may be paying for features that are not valued by you or your employees. It is important to be prudent and review your existing plan for any unnecessary expenses. Retaining & Motivating Employees – Some provisions allow you to link plan contributions to certain company objectives (such as profit sharing, productivity, workplace safety goals, or satisfaction surveys). Some business owners or operators may view it unnecessary to fight employee attrition in our current economic environment. However, cutting a retirement plan may cut morale and motivation having an inadvertent affect on productivity as well. Retaining and motivating key employees is a sound business strategy that can help the business or organization stay strong. Level of Service – What type of support do you want for you and your employees? You may desire one-on-one meetings, employee education, online account access, or toll-free client support. Employees should be educated about their investment options. The investments available within the plan should be varied and suitable to meet the needs of all of your employees. Their performance against their benchmarks and peers should be easily accessible. Proverbs 21:5 states that “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.” In times like these we cannot afford to make careless decisions. And Proverbs 15:22 states, “Without counsel plans fail, but with many advisers they succeed.” As with any other business decision, we should be diligently evaluating the situation and seeking wisdom. A retirement plan should complement your business objectives. Using the wrong type of retirement plan with the wrong features can be like using the wrong tool for the job. It might just work, but it may be less effective than using the right one. Written by Sean M. Williams, Financial Advisor Waddell & Reed 100 Painters Mill Rd. Suite 720, Owings Mills, MD 21117 (410) 363-9667 ext.104 The preceding article is meant to be general in nature and should not be considered as investment or financial advice related to your personal situation. Please consult your financial advisor prior to making financial decisions. Waddell & Reed, Member SIPC.
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