As an architect and possibly a firm owner, you work long, hard hours to maximize revenue and manage costs. You wouldn’t think of overpaying thousands of dollars for labor or building supplies, or letting cash go unaccounted for, but unfortunately when it comes to retirement plans, many firm owners leave a lot of money “on the table” without even realizing it. How does this happen?
A major reason that you may not be benefiting as you could from your retirement plan is that it may not have been updated and optimized for current laws. Another reason is that you don’t yet have a retirement plan so you are missing opportunities for valuable tax advantages as well as for an economical employee benefit.
Retirement plan design is can be complex such that few business owners can afford the time to learn all of their options for optimizing a plan for their specific circumstances and goals—which is regrettable.
If you are not maximizing your retirement plan opportunities and in essence, leaving money on the table, it creates a drag on both your business and personal balance sheet. Eventually, it may cost you the personal retirement security you want and deserve.
You don’t need to be a retirement plan expert to do something about it—but you do need guidance to get you where you need or want to be. Here are small, manageable steps to help lead you to the retirement plan best suited to you.
This is an ideal time to review your retirement plan options and explore additional opportunities available to you—you cannot do it any sooner! Options to consider:
- Higher contributions and better tax benefits—The maximum dollar amount that can be contributed on behalf of or by a participant to a defined contribution plan increases with inflation indexing. For 2015, this annual contribution limit has increased to $53,000 ($59,000 for participants age 50 and older who elect to take advantage of the “catch-up” election on salary deferrals). In defined benefit plans, owners now can set side annual contributions sufficient to pay an annual retirement benefit of up to $210,000.
- Combination plan—The Pension Protection Act of 2006 created a new type of hybrid pension plan that combines a traditional defined benefit plan with 401(k)-like features. Dubbed a “DB(k),” the plan allows high company contributions for some owners and highly compensated employees, especially those nearing retirement age. In addition, each plan participant can make elective deferrals up to the 401(k) limit, which is $18,000 for 2015. (An additional catch-up deferral of $6,000 is available to participants age 50 and up.)
- Rise of the Roth—Companies are permitted to offer the benefits of Roth accounts in their plans, making possible the ability to take future retirement withdrawals tax-free. By adopting a Designated Roth Account feature, you can personally convert money from the “traditional” side of your plan to the Roth side, whenever this aligns with your retirement goals.
- Cost-consciousness—In 2012, the U.S. Department of Labor began requiring most retirement plan service providers to make compensation disclosures to plan fiduciaries, including the total operating expenses of plan investments, which has increased cost transparency and efficiency for small business retirement plans.
- More planning flexibility—In 2014, the IRS issued regulations that will make it easier to use guaranteed deferred income annuities in retirement plans, thereby shielding a portion of your plan balance from required minimum distributions after reaching age 70½. In addition, the IRS clarified that qualified plans may include tax-advantaged disability insurance, to continue contributions for workers who become disabled.
- New myRA—Starting in 2015, companies may offer (at no cost) a new payroll-deduction option in which each employee may contribute personal after-tax money to a new myRA account in which both principal and interest are guaranteed by the U.S. Government. Each myRA account may grow as large as $15,000 and then be converted into a personal IRA (Traditional or Roth). Given these and other changes, how well is your plan meeting personal and company needs? How does it stack up against the plans offered by other companies in your market, including competitors? Consider making changes that will benefit you and your employees.
Learn about the broad categories of plan types and the features and contributions that distinguish one from another to determine which is most suitable for your situation. Plan types include SEP, SIMPLE, 401(k), Owners 401(k), Defined Benefit, Cash Balance, DB(k), and others.
If you are not up to date with the changes in the Retirement Plan field, seek specialized expertise and advice by speaking with a financial professional to help you avoid selecting an outdated or inefficient plan that may cost you unnecessarily. Even if you have fallen behind in saving for retirement, the right plan design can accelerate contributions to help you catch up.
The final choice is yours to make—make the one that benefits you and your employees the most.
As the exclusive retirement plan provider for AIA members through the AIA Trust, AXA has led many architects through the retirement planning process and has the knowledge and experience to be your guide. We will help you break complex, financial issues into small, manageable steps. To schedule a phone consultation and pursue further discussion about your retirement plan options, please call 1-800-523-1125, department 2115 or visit www.axa2plan.com
This article is only a summary of the business planning strategies presented and is not intended to provide complete information about each strategy. As needed, please consult with a financial professional who can help you determine the strategy that best suits your needs. Guarantees are based on the claims-paying ability of the issuing insurance company. Life insurance contains exclusions, limitations, and terms for keeping it in force. For costs and complete details, contact a financial professional.
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