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Best retirement pension plan


Guest joeyd

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I am an owner of an S Corporation and I am looking for the best pension plan available for myself. I typically have 2 to 4 employees and the SEP contricutions I would have to make for the employees does not seem to make the plan a good idea for me personally. Does anyone have any recommendation on any plan available where I can maximixe my contributions but would minimize fund outlays for employees. Any help is appreciated.

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This is an impossible question to answer without detailed information on your age, ages of employees, salaries of you and your employees, stability of your earnings and future outlook, etc., and most importantly, what YOU really want/need. I'd suggest, just as a basic source to see a general description of various plan types, IRS publication 560. This will give you enough background to then do a few web searches for more detailed information. Once you have a general idea, then I'd recommend contacting a local Third Party Administrator if you want detailed proposals.

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Determining the best design would require a census of all of your employees, including yourself, total income available for benefits (ie, salary and K-1 income not required for your living expenses), future viability of your business and of course an idea of your risk tolerance.

Many on this board can do an excellent job of designing a plan for your. However, no one wants to give away their hard won knowledge. Without some assurance that you would place your plan(s) with them, a fee may be involved for a study of your unique situation. You can use the email function to contact members privately. You can follow different threads for a while to see if you 'like' one or some people more than another.

Locality may be important to you if you desire 'face' time. If this is so, let us know what region or even more specitic to a city would help.

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You can also go to http://www.selectaretirementplan.org/select.htm which will ask you some basic questions and help you choose a retirement plan that's right for your business. Or you can call some vendors or visit some vendor websites. A lot will depend not only on how much you want to put in, but also how much responsibility you're willing to take...for example, a SEP doesn't require a 5500 form. There are plans out there that can create a large disparity between your contributions and your employees...for example a DB plan, a cross-tested profit sharing plan, a Safe Harbor 401(k). But a lot will depend upon the census data.

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Since you are considering a retirement plan which means that you are considering ways to transfer assets from the Corporation to your personal pocket, it might be a good time to consider whether you should remain an S Corp etc.

While you are looking also look at "Age weighted" and "Cross Tested" plans which might not be in Pub 560.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Since you are considering a retirement plan which means that you are considering ways to transfer assets from the Corporation to your personal pocket

Mr. Spock might not agree with the logic of this conclusion. Kindly explain or retract.

While you are looking also look at "Age weighted" and "Cross Tested" plans which might not be in Pub 560.

Would the EOE please explain these things?

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You can see IRS Pub.560 here:

http://www.irs.gov/pub/irs-pdf/p560.pdf, or call to have a copy mailed to you.

You can also find resources here:

http://www.dol.gov/ebsa/consumer_info_pension.html

The link in post above by wmyer appears to ignore defined benefit plans as an alternative. Depending on the factors mentioned above (ages, compensation, etc.), a DB plan could be a valid consideration. Don’t be scared off by those who say they are dinosaurs; DB plans have advantages that can be significant in certain situations, but may not be cost effective for all employers.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Does an S corp allow the same things as a C Corp? Which 1 would serve his future plans better?

If he wanted to save out of his W2 earnings he could just go ahead and do so without needing to set up any plan of any sort. He obviously wants to do more than take it out of his own pocket whether it got there by W2 or K1. There are only 2 sources of money available his money and the Corporation's money that has not yet flowed trhough to him. So if he is not using his own W2 money, What then is he doing but looking for a way to transfer the Corporation money outside of a W2 and/or K1 to himself via some vehicle?

Pub 560 does not address plan designs so he would not be aware of the terms. Why should he be aware? Based on his facts and circumstance including age, employee's ages etc etc such a plan design might fit his needs or at least be considered.

I did not get the point of your questions nor the reference to Mr. Spock. What is the relevance of Mr. Spock and why would/could there be a need for retraction? Retraction of what?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I am 45 years of age. Our business gross sales varies from $800,000. to $2.5M depending on the success of our construction business. Last year I had appx. $150,000. in employee salaries. Our foreman , 42 years old, made appx 60K, Our subforeman, age 41, made appx 45K and the balance is made upof temporary workers making an average of $15-20 per hour, typical age is 40 years.

My salary / compensation is directly tied to the succes of the business. I am able to draw $300,000. on a good year and $30,000. during a recession.

I'm not trying to get a plan for free, just gathering information to educate myself. I will proceed and pay for someone to start a plan. I just need to educate myself.

I'm looking for the best way to take money directly from the S corp and invest in a retirement plan withour having to take S corp money( My money) and pay for employee contributions. I treat my employees extremely well, I'm not looking for a plan for employees, only for myself.

This is a great site and thanks for all the responses.

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You start by doing the suggested reaearch and a little reading. The research will point you to possibilities for which you should get the literature and read. This will give you sufficient knowledge to better understand that which agents will try and sell you. Do not get hung up on any "proprietary" names, that is just window dressing to make a particular plan seem different from others which under the shell are the same thing.

quint,

See what joeyd says at the start of the 4th paragraph. It wasn't rocket science to have seen this from his 1st post. In fact it is a given. That is what business owners have to do.

What is "EOE"?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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To joeyd: You have expressed the common intent of many business owners, i.e., that the profits are all yours.

The IRS treats pension contributions as a regular business expense deductible against business income before profits are determined. If you have a pension plan, it is not your money yet, because you have not been taxed on it.

Unfortunately for you and your wish, the IRS does not grant the tax deduction if you violate IRS Code 401(a)(4) or 410(b), both of which require that the benefit is not for the exclusive use of the highly compensated. If you want the deduction, you must include some or all of your employees. If that does not work for you, then pension benefits don't either.

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But the trick is to choose the method that gives the maximum legal benefit to the owner even if it turns out the employees must be included, and to what extent. As a result Coporate structure etc should be looked at in case a selected method works better under 1 scenario than under another. It most likely will end up as a decision between paying the IRS or sharing with the employees. However how much of either will be conditioned by the method chosen.

This is a reason why we use "age weighted" and "cross tested" etc rather standard methods.

To understand better joeyd needs to do the research and reading if he wants to "live long and prosper".

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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joeyd,

A 401(k) plan sounds like the way you should lean. That way you "may" not have to contribute on behalf of your employees. But you may find it in your interest to do so so that they participate which in turn allows you to mzximize your savings opportunity.

There are sharks in the water so speak to several potential service/investment providers.

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SoCAL, In wish I could consider myself " highly compensated". When the bills, suppliers, IRS, Insuarance, etc.etc.etc. are paid, I am not highly compensated. There are times many business owners wonder if it is worth the headaches. That being said, I am interested in pulling money out for my retirement from the corp. Do not forget,in a small business the corp exists only because of the owners and their efforts. the money in the corp is that of the owners.

Thanks,I needed to vent.

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Joey, with that sort of logic, I would like to see how far your business gets with only you working for it. The reality is that you are making money on the backs of your employees or you wouldn't have them. I now question how well your employees are treated with that thinking.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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When I use the term "highly compensated", it has a legal meaning, not an emotional one. If you own more than 5% of your business, or if you make more than $95,000 the law says you are highly compensated. As a small business owner myself, I am right there with you, but I did not make the rules.

To understand this in an emotional context, what is the most money an IRS agent can make? If you make more, then you must be highly compensated.

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Joey - when SoCal was referring to "highly compensated" he wasn't necessarily referring to your level of net salary. By statutory definition for purposes of a qualified plan, as the sole owner of a business, you are "highly compensated" - even if you end up with no income. When/if you decide to meet with a local advisor to discuss specifics, they will explain all this to you as it relates to your specific situation. We're all discussing generalities here, as real answers are very fact-specific.

Rule of thumb - you can't have your cake and eat it too - if you want anything substantial for yourself in a qualified plan, you are likely to have to do something for your employees. Your local advisor will be able to show you a design with specific numbers so you can determine whether or not it is worth it to you.

Ok, I see SoCal already replied while I was typing this!

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Blinky, One of my employees went to the dentist prior to the holidays with a severly swollen gum affecting one side of his face. We provide medical but not dental insurance. Turns out because of years of neglect ( he's been thru a bad divorce and his present marital status is poor at best costing him much of his income) the dentist is recommending removing 60-80% of his upper teeth. The dentist happens to be a client where we have recently replaced all millwork, ceilings, trims etc. in his office. My final billing of appx. $2,000. was agreed to be donated for my employee's dental work. It will probably not cover all expenses but it will help.

Both employees get company vehicles at no cost, fuel, insuarance included, vacations, sick days as required and personal days as we all have lives and problems. Don't for a minute judge me and how i treat my employees.

Thanks for the info folks, I've got alot of homework to do. I'll post when I make a decision on a plan.

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Blinky, how many employees do you have? Was it six or seven? How many years experience do you have running a business with employees?

I learned many years ago when my kids were infantsand I found myself free to express my opinions to other friends / parents with older children and teenagers. i knew it all and freely expressed my opinions. As i grew up I realized quickly not to open my mouth until I have walked in that person's shoes. It's solid adice.

Blinky have you had a year when your W2 was under $20k and three employees had 40-65K. It happened to me two times. I paid my employees and all the bills and sucked it up. How many time did you experience that Blinky? Stop throwing darts at someone who you know nothing about.

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Gentlemen,

Perhaps we can cease the dart-throwing and negative comments, and get back to productive discourse. Thanks.

For joeyd, several previous comments should be useful to you. IMHO, the most important is that you should engage the services of an experienced retirement consultant to assist in your plan design. Important facts (in no particular order) will include items such as

- C corp or S corp?

- what type of benefit do you want to provide?

- what level of benefit do you want to provide?

- what employees do you want to cover?

- what level of funding can you expect (short-term and long-term are both important and may have different answers)?

IMHO, when you engage an expert consultant, you may or may not decide to exclude individuals who already have a "preference", that is your choice. But, if you listen to such an expert, be sure to listen to some other experts before you make a decision.

After you get some of this advice, then you may choose to come back to these Boards to bounce those ideas off the larger community. Most of us like responding to such inquiries (it is difficult to do so without some framework first).

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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All I am pointing out is the dichotomous nature of your remarks. Your fiesty comments indicate you probably do appreciate your employees and provide well for them, although the sentiment of the post I challenged was different. With your benevolence you think that the a pension plan just for you is appropriate. The Internal Revenue Code says differently.

I don't know you, you don't know me. Let's move on with our lives. Report back what you find and we will all discuss it. You will make an informed decision. It will probably be a good one. You will be happy you did it and the happiness will show to your customers who will refer you to others. You will become richer, get a little pot belly and keel over in your bean salad old and content.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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