Retirement Plan Options For Businesses

Transcript

Webinar Introduction

Hey everybody, my name is Michael Sayre. I'm with CUI Wealth Management. We're located in the Salt Lake City, Utah, area. We focus on employer-sponsored retirement plans. And that's what we're going to talk about a little bit today: some of the options you have as a small business to build your wealth through employer-sponsored retirement plans. An entrepreneur or business owner needs to see the world differently and have a different perspective.

Today, I would like to give you a different perspective on employer-sponsored retirement plans. Everybody works hard. Everybody works long hours to get their business started. And you could still work long hours on the weekends or sometimes in the evening to ensure you can beat the competition. And what is it that you're giving up? Some people might wish they could travel more, but they must run their business. You may want to watch more Seinfeld episodes or spend more time with your buddies.

Whatever the case is, you give something up. So, this is what I give up when I spend time on my business. I have two beautiful girls. I have a little boy and a beautiful wife, and I could spend all the time I spend on my business with them. Regardless of what you're working for and what you're giving up because you sacrifice so much, you want to be very efficient with the assets you get with your success. And it doesn't mean that you're stingy, but as soon as you start having success, everybody wants a piece of that success. You start getting sales calls from different people. And, of course, the IRS also wants to have their portion of your success as well. So we're going to talk about how to be efficient with the success you receive. And it's not something you just accept on a whim. You work hard for that.

Advisor Introduction

So, a little bit about me: like I said, I'm Michael Sayre. I am here in Salt Lake City, Utah. We focus on employer-sponsored retirement plans. We're very involved in a lot of different organizations, including the Society of HR Management. We have a local chapter, SHRM. But we focus on retirement plans. That's what we do. We work a lot with not only employer-sponsored retirement plans but also business owners and help those entrepreneurs as they make decisions for their finances. When you go to sell your business, we can be a resource to help you invest the proceeds of that business.

If you stick around till the end, we've got a guide that you can download to help you have a better picture of some of those retirement plan options you have as a business owner. So let's move forward. I don't know if you like The Bachelor. I don't watch it. I don't know if this is a good contestant or not, but we're trying to help you find the right plan and help run the right plan for your business, regardless of what your needs are. So the question comes about, I know we were talking about, you know, being efficient with your money, but what are some of the benefits of having an employer-sponsored retirement plan in your company? Let's talk about some of those essential benefits. So, some of this is going to be a straightforward review. The first thing is obviously to save for retirement. What you know, you'd hope that if you're offering a retirement plan or you're putting one in place, if you're a solo entrepreneur, you are able to save for retirement through that.

Life Expectancy

A couple of things I think are really important are some people don't believe this, and some people do, but life expectancy has gone up over the years. Right now, the average life expectancy is 77.5. Life expectancy jumped a little bit over a year. So you don't want to be running out of money. You want to be able to provide for yourself and have a life of dignity as well as a life of self-sustainability. And that is done by putting your savings to work early on. As early as you can, the better. Next is that we all know about social security. Like it's that hot topic, where is it going to be around when I'm ready to retire? The way I look at social security is that it's a pension plan because the government puts money in, and you get a consistent payment from putting that money in.

Social Security

If nothing happens with the Social Security Administration by the year 2035, it's going to run out of funds. And if nothing else is done, then benefits will have to be cut to 83 % of what they currently are projected or what they're currently at. So, the point that I'm trying to make here is it doesn't always make sense to rely completely on social security. And even as it stands, the majority of Americans only use this for a third of their income. The next thing is health. The cost of healthcare right now in retirement is about $315,000 on average, which is what it costs to pay for healthcare during retirement. So it's important to have the money for that because as you get older, your health can start to deteriorate, and you want to make sure that you have what you need in terms of healthcare.

The next thing is the tax advantages you get from running an employer-sponsored retirement plan. There are a couple of types of tax advantages you can get, depending on the type of plan you choose. Here are some of them. First is deductible contributions. Next is reducing your taxable income. So, from a business perspective, you can reduce taxes from the business or personal side. If you are a solo entrepreneur, it can be one and the same, right? The next thing is some types of retirement plans have tax credits attached to them. So, Secure Act 1.0 and Secure Act 2.0 are trying to incentivize, among other things, people to save for retirement because it's obvious that the government knows that.

Social security is running out, and they want to make sure that people can sustain themselves in retirement. So, this is not always the case, but keep your eyes out for tax credits. And if you need additional help with that, like I said, we can help you out with that. We can take a look and see what opportunities there are for that. And the next is a valuable benefit. And you'd hope that putting together a retirement plan offers value. One of the values that it offers, and I'm just going to focus on two points here.

Potential For Investment Growth

But one is growth potential. So, you have that opportunity for those investments to continue to grow throughout your lifetime and help you prepare for retirement. The second thing is business diversification. This is strong; this is a really important piece of the puzzle because all the business owners I know have their business or their businesses as their most valuable assets. Because of that, sometimes business owners don't invest or put assets in other places. The problem with this is that then you have a concentration of your most valuable asset. And for most people, hopefully, they'll be able to sell their business and get some money out of it. But technology can disrupt things. Government changes in policy can disrupt things. Or you can, like, competitors can come in and make it really tough to compete. And now your business is probably different.

Regardless, even if everything goes really well and you sell the business, it's still nice to have something set aside that's diversified from the risk of the business. And especially if you, you know, if you're selling it over a portion of a couple of years or whatnot, you have something that you already know about the tax implications as you save. So diversification is very important. So, let me give you an example of how all of this can wrap up for a business owner.

How Retirement Plans Can Help Your Business

In this example, we have a medical professional, and this is a true story. Medical professionals reached out because they wanted some help. The first thing that came that came about that was really interesting was that this individual didn't want to make more money. The reason was that she was already getting taxed quite a bit, and she didn't want to make more money just to keep a marginal amount of the money she had made. The second thing is she had a really good plan in place.

It was really low cost, and she had some really good investments in place. But, the, the flip side of that is that she's like, you know, I'm, I spend my time on my business. When I get home, I want to do things at home. I don't want to be working on my business. I want to, and I don't want to be working on, you know, keeping tabs on the investments and keeping tabs on the compliance of my plan. And then, finally, it took a couple of years for her to find the right match.

She ended up working with us, but it wasn't something that, like she had already talked to a lot of other advisors before she decided to move forward with us. So, really, what it comes down to is for a lot of employers and business owners. They're looking at how I can be tax-efficient. How do I keep the time, the small amount of time that I have outside of the business? And how do I do that utilizing someone that I trust?

IRA

Those are important tactics or things to consider when deciding on your retirement plan. So, let's talk about some of the options you have, and then we can get into them. Let's start with that. I think that's a great way to start. OK, the first option you have is an IRA in 2024. The maximum you can put in there is seven thousand dollars. If you are age 50 or older, you can put an additional thousand dollars.

So, an IRA stands for individual retirement accounts. It's made for an individual. So, if you have earned income, you can put money into that. Assuming you haven't liked it, you know, there are some stipulations. If you make a lot of money, you might not have the same type of advantages as if you don't make as much money. So here are some of the pros and cons of an IRA. It can reduce your taxable income if you do a pre-tax or you can do a Roth, and they're easy to establish.

On the downside, there is a phase-out period where if you have, if you're making too much, you may not be able to take advantage of some of those tax benefits that you would have otherwise. They're not for businesses, and they have low contribution rates. And this is very evident when you look at a simple IRA. Simple IRAs are like the name suggests; they're really simple, but the simplicity also makes them so.

SIMPLE IRA

I don't know if it's necessarily the cause of this, but they're simple, but they're not very flexible. You don't have a lot of options as to how you can set it up, but you have the option to put money in as a business owner and as an employee. So, for your employees, you can contribute, and they can get a match from the employer. It can reduce your tax liability up until just recently. So SECURE ACT 2.0. made it possible for individuals to start putting in Roth contributions. But it used to be that it was only pre-tax. Compliance is easy, they're low cost, and all of that. But even though they have a much higher contribution rate than an IRA, there are other options that are significantly better if you're looking to maximize the amount that you're putting into a retirement plan. And you can see this when you look at a SEP IRA.

SEP IRA

A SEP IRA is a great option if you're just looking to put money in from the employer side. And this is one of the favorites of a lot of CPAs that we run into. And part of that is because they're very similar in an IRA. You can put money for the previous tax year as long as you do it before you file taxes for that year. So, if you were to wait until January 2025, you could still make a contribution to an IRA.

Or for a SEP IRA as long as you haven't filed your taxes for that year yet. SEP IRAs are easy to establish, but just like a simple IRA, there's not a lot of flexibility in how you put those together. You don't have a lot of options in terms of plan design. So you kind of have a little bit to work with, but they're low cost, they're easy to set up, compliance is super easy, and they can be a great option for the right scenario.

401(k)

Next, we have 401k and profit-sharing plans. And that kind of can go hand in hand. They usually do. Let's talk about solo K first. Solo Ks are a great option for a person who is an owner and an operator. If you're not the only employee, like, you know, the employer and employee, you can't do a Solo(K), but that can be a pro, right? It's available only to business owners, but if you have employees, you can't offer one. It can reduce your personal tax liability just like the other options. You can do a Roth or a pre-tax option. There's a much higher contribution limit than other types of plan types that we've already talked about. And there's a lot of flexibility in how you do things. So there's an employer side and an employee side. So, what we usually see with this is that an individual will set this up as a solo entrepreneur.

They'll put money aside out of their paycheck as the employee side. And then, at the end of the year, or at the beginning of the next year, before they file taxes, they'll put in a profit-sharing contribution that makes sense for their scenario. How you make the profit-sharing contribution depends on your plan or your entity type. So, if you are a corporation versus a sole proprietor, that's going to influence how the contributions are made on the profit-sharing side. And then 401Ks are very similar. It's just you; unlike a solo K, you can have other participants in this type of plan. And just like everything else, you have some; I think the biggest thing is that you have a lot of flexibility in the plan design. And this is really important if you have other employees because if you want to say, hey, we're going to give a really good match, but we want you to be here for, say, a year before you can participate.

And we want to offer it to those who are age 21 or older. And you have to work a thousand hours before you can receive that. You can do that. You can provide stipulations that they have to reach certain eligibility criteria before you provide that benefit. Now, you can do that with some of these other plans, but there's a lot more flexibility in that with a 401k. Also, you can put vesting schedules. You can say we're going to make a really good contribution to you, but you have to be here for three years to vest in any of the contributions that we put in. So, there are some awesome things you can do in terms of flexibility with the 401k plan. I can talk about that all day. That's really kind of the sweet spot of what we do a lot of work in, but it's a great option.

Cash Balance Plan

Now, finally, we have defined benefit plans. I have that way up there. It doesn't mean that you can put 400,000 into that. I just wanted to make a point that you can put substantially more into a cash balance plan or defined benefit plan, depending on the type. Then, you can use another type of plan. So let me give you an example of what we have. We got lined up with a dentist, and this dentist. She was like, you know, I'm maximizing my contributions. I'm putting in my $23,000 a year. But I, you know, I, I wish I could put more. We took a look and ran.

We had an actuary run the numbers for her, and if she were to combine the 401k plan and a cash balance plan, she could put over $140,000 into that plan. And here's the downside. The upside is you can put a lot of money into a cash balance plan. They are a great option, but you also have to consider that there are a lot more costs associated with them because now you have to get someone to an actuary to put them together for you.

So you remember how, once upon a time, all these businesses used to have pension plans, and you just relied on the pension plan to get you through retirement. A cash balance plan is a type of pension plan, similar to where you fund a certain amount, and it's based on your age and your income. So, there are a lot more calculations that go into this, but this is a great option if you are trying to contribute more and you've run out of room for what you can contribute to your other retirement plan.

If you have questions or need help, we can consult with you and help you find the best option for you to reevaluate or manage the plan that you are running yourself. So, what keeps people from taking advantage of these awesome benefits of employer-sponsored retirement plans for a business? One is a complexity. They can get really complex, and people may be like, you know, I just don't want to deal with it.

There's all this jargon. I don't want to get in trouble because I don't know what I don't know. Right. That's a very common concern. What we do here at CUI Wealth Management is simplify things as much as possible. You know, we always talk about that. I always say like, you know, we want to make things simple, but we always believe in showing our work. So, in other words, we want to provide a good recommendation, but we'll show how we came to that recommendation. We want to simplify your life so that you can focus. Like I said, you work hard for your business. You give up things for your business.

About CUI Wealth Management

We want you to not give up excess time when we could offer our services and help you focus on the bigger picture. The second thing is costs. Usually, when costs are a concern or where costs can be a concern is when the strategy doesn't align or sometimes, like, you know, you might have the right strategy, but you're not using a provider that's competitive in that space. So one of the things we see pretty often is we see people that go to providers that they've heard about, and for a 401k, for example, they'd be like, why does it cost so much? And it might just be that the provider they're going to has a market for bigger plans. And if you're starting up a plan, it might cost significantly more than if you went out to a company that focuses on smaller plans and went that route. So it's important that you look at costs, but you look at that through the lens of what kind of value is being provided for the costs that are being incurred.

OK, and then how can an advisor help? Why would you use an advisor? So, I am kind of going back to that example that I talked to you about with that other medical professional; they were doing things on their own. There were some compliance things that we had to get fixed up, but it was, you know, they didn't want to give up their time. They wanted to have someone that they trusted, and they wanted to make sure that.

They weren't paying too much in taxes. One of the problems that we see in this industry is that there are a lot of advisors. There's not a lot to focus on employer-sponsored retirement plans. So, 92% of advisors have less than ten retirement plans. So the problem with that is that if you're the only retirement, like, you know, if you're the only client that they have with their retirement plan, or they have two or three, they may not know what they don't know. So they may have blind spots.

93% of retirement plans have an advisor, but there are very few that actually focus on employer-sponsored retirement plans. The second thing is there are a lot of great advisors out there who have great investment experience, but the investment side is only a small portion of the overall need that you may have with a retirement plan. There's a need to keep the providers in check through benchmarking and making sure the fees aren't too high. There's the compliance side; there's employee education if you have other employees. The reason why there are so many people who are changing advisors these days, according to a Fidelity survey that they recently did, is because they want to go to someone who specializes in that. That's not a lot to ask for.

The problem is, here's how I look at it. If I don't know if you've seen Bear Grylls, Bear Grylls has a TV show. He's, he was, an Australian military guy who learned about survival. Now, he has a TV show where he takes celebrities out and shows them how to survive on an island. They survive the night together by living off of berries, building a shelter, and all of that. The point I'm trying to make is if you drop him off on an island, he's going to figure out how to make the best of it. If you drop me off on an island, I may or may not survive. And the difference is experience. So if you have experience and you know what you're doing, then that's great. Maybe you cut out the advisor. I probably shouldn't say this advisor probably hates me for that. But if you don't have the experience, you don't want to get in trouble because you don't know what you don't know. So, it's important to have a trusted advisor who can help you and support you. Also, when you get rid of the advisor, there's no accountability. So we've seen plans that are more expensive than they need to be simply because the provider knows that the individual that has a plan, like they, doesn't benchmark the plan. And so sometimes those fees are higher just because

They haven't been negotiated down, but they could have been negotiated down with the proper use of an advisor. And one of the things that is a common misconception is that sometimes people will be like, well, the provider is the fiduciary, right? And most of the time, that's not the case. Usually, if there is a fiduciary relationship, there might be limited fiduciary responsibilities, but ultimately, it's the person who sets up the plan or signs off on the documents that are responsible for the plan.

OK, these are some of the values that we, these are our values as a company. We believe in experience, structure, and loyalty to our clients. So we have experience in the 401k and retirement plan space. We have a structure that is built to service that type of client and we are loyal to our clients. We don't have, we are independent, which means we don't have alternative motivations to put people in specific types of products or services.

These are the services that we provide. I know you're not supposed to like to share a whole bunch of writing on a slide, but I couldn't help myself. These are some of the things that we do to help support people with their retirement plans. This is a team; if you were to work with us, this is a team you'd be working with. And this is my contact information. I'm going to go over a couple of slides, and I'll come back to this in a second, but let's see.

As promised, here is a way for you to scan and get a copy of the retirement plan guide that goes into a little bit more detail about each of these types of retirement plans. So you can see specifically what type of options may make sense for you. And then I'm going to really quickly go to the disclosures because we need to make sure that we put those out there. It's just the nature of our industry. But yeah, if you need help with anything, you can email me or give me a call.

QR code is there to set an appointment if you want to set an appointment directly on my calendar. But I'm more than happy to help. Once again, thank you so much for joining us today. I appreciate your time, and hopefully, we talk to you soon. Thank you.