retirement planning
Post on 08-May-2015
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[Agent] is a Registered Representative of Equity
Services Inc., [branch office address and telephone
number].
Securities are offered solely by Equity Services, Inc.,
Registered Broker/Dealer Affiliate of
National life Insurance Company, Montpelier, Vermont [DBA name] is independent of
Equity Services, Inc. National Life Group is a trade name of
National Life Insurance Company and its affiliates.
This information is not intended as tax or legal advice. Please consult with your Attorney or
Accountant prior to acting upon any of the information
contained in this presentation.
TC32934(0107)TC32934(0107)
Please note that agents who use this presentation must submit the cover slide with their securities Please note that agents who use this presentation must submit the cover slide with their securities disclosure for review and approval prior to use. Agents should also be aware that changes made to disclosure for review and approval prior to use. Agents should also be aware that changes made to
the presentation may require refiling with the NASD., which can be a 4-6 week processthe presentation may require refiling with the NASD., which can be a 4-6 week process
Retirement Planning for the Business Owner
Presented by:
[DBA]
Welcome
Business Succession Planning
Proper Business Succession Planning includes:
• Estate Planning
• Retirement Planning
• Executive Benefit Planning
Business Succession Planning
Proper succession planning requires capital:• To avoid estate liquidation
• To retire comfortably without draining business assets
• To resolve conflicts between interested parties
Business Succession Planning
Lack of capital at owner’s death accounts for many failed business successions
Business Succession Planning
• Solid planning to avoidfamily conflict
• A qualified – and interested - successor
Successful Transitions Need:
Business Succession Planning
• Solid planning to avoidfamily conflict
• A qualified – and interested - successor
• Continued support and loyaltyof key employees
Successful Transitions Need:
Business Succession Planning
Successful Transitions Need:
• Solid planning to avoid family conflict
• A qualified – and interested – successor
• Continued support and loyalty of key employees
• A new owner and management who are ready for change
Business Succession Planning
Many businesses fail not because
of an owner’s unexpected death,
but due to insufficient retirement
capital for a retiring owner.
Business Succession Planning
A complete business succession plan covers three inter-related strategies:
• Estate Planning• Retirement Planning• Executive Benefits
Planning
Business Succession Planning
There are two sides to retirement planning:
• Setting your goals• Developing a plan to reach
your goals
Retirement Planning
Uncle Sam offers a variety of tax-favored ways for
business owners to sponsor a retirement plan.
Retirement Planning
Only 30% of small businesses sponsor a qualified retirement
plan
Source: NFIB 2005
Retirement Planning
What happens to a businesswithout a retirement plan?
• Assets tied up in business• Often unable to sell at
acceptable price
Result: no retirement
Retirement PlanningSolutions
Qualified Retirement Plans:
• Tax-favored• Accumulate retirement assets
using company dollars• Build employee loyalty
and support
Qualified Plans
Qualified plans allow thebusiness owner to:
• Target their personal retirement income needs
Qualified Plans
Qualified plans allow the business owner to:
• Target their personal retirement income needs
• Substantially reduce company’s taxes
Qualified Plans
Qualified plans allow the business owner to:
• Target their personal retirement income needs
• Substantially reduces their company’s taxes
• Tailor a plan to address their specific needs and objectives
Qualified Plans
• Defined Contribution Plans: Retirement income is defined by plan contributions
• Defined Benefit Plans: Retirement income is defined by the benefit desired
Two basic types of qualified retirement plans:
Qualified Plans
Objectives:
• Defined Contribution Plans: Prefer to manage contributions• Defined Benefit Plans: Prefer to promise specified benefits
Features:
• Company manages annual contributions• Individual (portable) accounts• Easier and less expensive to administer than defined benefit plans
Defined Contribution Plans
Applicable guidelines must be followed to qualify for favorable tax treatment.
Defined Contribution Plans
Employer creates a pension trust
Total contribution deposited into employee’s account
Investment earnings realized on contributions
Defined Contribution Plans
Tax Benefits:
• Tax deferred accumulated• Flexible contributions• Contributions tax deductible to employer
Defined Contribution Plans
Retirement Income:
• Total contributions
• Accrued earnings
Defined Contribution Plans
Survivor Benefits:• Non-insured plans• Insured plans
Defined Contribution Plans
Defined Contribution Plans
Two basic forms of defined contribution plans:
• Pension plans• Profit sharing plans
Defined Contribution PlansProfit Sharing
Features:
• Maximum funding flexibility• Employer contributions are discretionary
• Contribution flexibility with small to medium sized businesses
• Ability to reward employees in profitable years is profit popular with larger, well-established companies
Defined Contribution PlansProfit Sharing
Tax Factors:
• Maximum employer deductible contribution 25% of the total payroll of all participants in the plan
• Maximum individual allocation amount of lesser of 100% of compensation or $45,000
• Must intend to fund on regular basis• Allocation formula must be defined
Defined Contribution PlansProfit Sharing
• Contributions do not have to be the same for all plan participants
• Forfeitures may be used to further increase participants' benefits
Defined Contribution PlansProfit Sharing
How it works:
Total company contribution – $50,000Total company compensation – $750,000
Employee A $75,000 or 10% of total compensation
Employee B $50,000 or 6% of total
compensation
$5,000 or 10% of total company contribution
$3,000 or 6% of totalcontribution
Compensation Profit Sharing Account
Defined Contribution PlansProfit Sharing
Defined Contribution Plans
• Traditional plans
• Age–weighted
• New comparability
All favor businesses in which the owners and key employees are older
OR more highly compensated
Types of Profit Sharing Plans:
Defined Contribution Plans 401(k)
• Profit sharing plan
• Elective deferrals
Defined Contribution Plans 401(k)
• Provides the profit sharing concept
• Gives employees tax-advantage way to save for themselves
• Profit Sharing Plan
• Elective deferrals
Must Meet Actual DeferralPercentage Tests:
• Matching contribution tests,
or• Contribution made to every rank and-file participant’s account
Defined Contribution Plans 401(k)
Defined Contribution Plans
Unlike profit sharing and 401(k) plans, a defined
contribution pension plan obligates an employer to a
specific contribution amount.
Defined Contribution Plans
Most common forms of defined contribution pension plan are:
• Money purchase plans
• Target benefit plans
Defined Contribution Plans
Questions
and
Distribution Options
Distribution Planning
Insure a lifetime income level:
Recalculate annual/monthly/quarterlydistribution from plan every yearorUse plan distribution to purchase annuity
Surrender charges may apply in the early years of an annuity contract and certain withdrawals prior to age 59 1/2 may be assessed a 10% penalty tax. Guarantees are dependent upon the claims-paying ability of the issuing company.
Distribution PlanningImmediate Annuity
• Guarantees payments over lifetime
• Ability to ensure retirement income for spousal survivors
Distribution Planning
Types of Annuities:
• Single premium fixed interest deferred annuities
• Single premium variable deferred annuities
• Flexible premium variable deferred annuities
• Single premium fixed interest immediate annuities
•Single premium variable immediate annuities
Sentinel Advantage Variable Annuity, form series 7400/7401/7400ID(0199)/7401ID(0199), is issued by National Life and distributedby Equity Services, Inc., Registered Broker/Dealer affiliate of National Life Insurance Company, One National Life Drive,Montpelier, Vermont 05604.
Sentinel Advantage is sold by prospectus. For more complete information, including charges and expenses, please request a prospectus from your registered representative or call (802) 229-3900. Please read is and consider carefully the Fund’s objectives, risks, charges, and expenses before you invest or send money. The prospectus contains this and other information about the investment company.
Distribution PlanningDeferred Annuities
Features:
• Accumulate tax-deferred
• Takes advantage of compound interest
Surrender charges may apply in the early years of an annuity contract and withdrawals prior to age 59 1/2 may be assessed a 10% federal tax penalty.
Distribution PlanningAnnuity Income Option
• Benefits remaining at death may be forfeited
• Benefits may be passed onto surviving spouse
• Benefits may be guaranteed for certain amount of time
Defined Benefit Plans
Features:
• Provides retirement income of determinable amount for life• Formulas recognize age, salary and service
Defined Benefit Plans
Calculation:
• Contribution is calculated annually by an enrolled actuary• Based on the value of future estimated benefits
Defined Benefit Plans
Tax Factors:
• Maximum annual benefit (2007)
is lesser of $180,000 or
average compensation in last 3 years of work• No specific contribution limit
Defined Benefit Plans
Social Security Integration:
• May enhance benefits for owners and other higher-compensated employees
• May reduce the cost of including lower-paid employees in the plan
Defined Benefit Plans412(i)
• Suitable for small businesses
• Funded with life insurance and annuities
– Provides death benefits from day 1
– Policy values fund defined benefit atretirement
– Maximum tax-deductible contribution
Features:
• Maximum owner’s retirement benefit
• Fully insured, pre-determined benefit amount
• Large deductions due to lower plan assumptions
Defined Benefit Plans412(i)
Features:
Benefits:
Defined Benefit Plans412(i)
• Easy to explain
• Does not require enrolled actuary
• Employer contributions tax deductible
• Contributions not taxable to employees until withdrawn
Hybrid Plans
• Plans have features of both defined benefit and defined contribution plans
• Cash Balance Plans
– Hypothetical Accounts
– Defined Benefit Limits
Combining Plans
• Maximize contributions by having both a defined benefit and a defined
contribution plan
• May have fully deductible defined benefit plan and make a 6% deductible contribution to a defined contribution plan
• Sophisticated carve out and floor offset designs
Retirement PlanningSummary
Retirement planning is critical to the business owner who must plan retirement wisely if his or
her business is to survive an ownership transfer.
Retirement Planning
Questions
& Answers
Thank You
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