Retirement Planning


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  • Note to Presenter: [Your introduction must include the following: I am a registered representative of Equity Services, Inc., the broker-dealer affiliate of National Life located in Montpelier, Vermont. We offer variable life insurance products through Equity Services.]
  • Retirement Planning

    1. 1. Retirement Planning for the Business Owner Presented by: [DBA] [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) 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 the presentation may require refiling with the NASD., which can be a 4-6 week process
    2. 2. Welcome
    3. 3. Business Succession Planning <ul><li>Proper Business Succession Planning includes: </li></ul><ul><li>Estate Planning </li></ul><ul><li>Retirement Planning </li></ul><ul><li>Executive Benefit Planning </li></ul>
    4. 4. Business Succession Planning <ul><li>Proper succession planning requires capital: </li></ul><ul><li>To avoid estate liquidation </li></ul><ul><li>To retire comfortably without draining business assets </li></ul><ul><li>To resolve conflicts between interested parties </li></ul>
    5. 5. Business Succession Planning <ul><li>Lack of capital at owner’s death accounts for many failed business successions </li></ul>
    6. 6. Business Succession Planning <ul><li>Solid planning to avoid family conflict </li></ul><ul><li>A qualified – and interested - successor </li></ul>Successful Transitions Need:
    7. 7. Business Succession Planning <ul><li>Solid planning to avoid family conflict </li></ul><ul><li>A qualified – and interested - successor </li></ul><ul><li>Continued support and loyalty of key employees </li></ul>Successful Transitions Need:
    8. 8. Business Succession Planning Successful Transitions Need: <ul><ul><li>Solid planning to avoid family conflict </li></ul></ul><ul><ul><li>A qualified – and interested – successor </li></ul></ul><ul><ul><li>Continued support and loyalty of key employees </li></ul></ul><ul><ul><li>A new owner and management who are ready for change </li></ul></ul>
    9. 9. Business Succession Planning <ul><li>Many businesses fail not because of an owner’s unexpected death, but due to insufficient retirement capital for a retiring owner. </li></ul>
    10. 10. Business Succession Planning <ul><li>A complete business succession plan covers three inter-related strategies: </li></ul><ul><li>Estate Planning </li></ul><ul><li>Retirement Planning </li></ul><ul><li>Executive Benefits Planning </li></ul>
    11. 11. Business Succession Planning <ul><li>There are two sides to retirement planning: </li></ul><ul><li>Setting your goals </li></ul><ul><li>Developing a plan to reach your goals </li></ul>
    12. 12. Retirement Planning <ul><li>Uncle Sam offers a variety of tax-favored ways for business owners to sponsor a retirement plan. </li></ul>
    13. 13. Retirement Planning <ul><li>Only 30% of small businesses sponsor a qualified retirement plan </li></ul>Source: NFIB 2005
    14. 14. Retirement Planning <ul><li>What happens to a business without a retirement plan? </li></ul><ul><li>Assets tied up in business </li></ul><ul><li>Often unable to sell at acceptable price </li></ul>Result: no retirement
    15. 15. Retirement Planning Solutions <ul><li>Qualified Retirement Plans: </li></ul><ul><li>Tax-favored </li></ul><ul><li>Accumulate retirement assets using company dollars </li></ul><ul><li>Build employee loyalty and support </li></ul>
    16. 16. Qualified Plans <ul><li>Qualified plans allow the business owner to: </li></ul><ul><li>Target their personal retirement income needs </li></ul>
    17. 17. Qualified Plans Qualified plans allow the business owner to: <ul><li>Target their personal retirement income needs </li></ul><ul><li>Substantially reduce company’s taxes </li></ul>
    18. 18. Qualified Plans Qualified plans allow the business owner to: <ul><li>Target their personal retirement income needs </li></ul><ul><li>Substantially reduces their company’s taxes </li></ul><ul><li>Tailor a plan to address their specific needs and objectives </li></ul>
    19. 19. Qualified Plans <ul><li>Defined Contribution Plans: Retirement income is defined by plan contributions </li></ul><ul><li>Defined Benefit Plans: Retirement income is defined by the benefit desired </li></ul>Two basic types of qualified retirement plans:
    20. 20. Qualified Plans <ul><li>Objectives: </li></ul><ul><li>Defined Contribution Plans: Prefer to manage contributions </li></ul><ul><li>Defined Benefit Plans: Prefer to promise specified benefits </li></ul>
    21. 21. <ul><li>Features: </li></ul><ul><li>Company manages annual contributions </li></ul><ul><li>Individual (portable) accounts </li></ul><ul><li>Easier and less expensive to administer than defined benefit plans </li></ul>Defined Contribution Plans
    22. 22. <ul><li>Applicable guidelines must be followed to qualify for favorable tax treatment. </li></ul>Defined Contribution Plans
    23. 23. <ul><li>Employer creates a pension trust </li></ul>Total contribution deposited into employee’s account Investment earnings realized on contributions Defined Contribution Plans
    24. 24. <ul><li>Tax Benefits: </li></ul><ul><li>Tax deferred accumulated </li></ul><ul><li>Flexible contributions </li></ul><ul><li>Contributions tax deductible to employer </li></ul>Defined Contribution Plans
    25. 25. <ul><li>Retirement Income: </li></ul><ul><li>Total contributions </li></ul><ul><li>Accrued earnings </li></ul>Defined Contribution Plans
    26. 26. <ul><li>Survivor Benefits: </li></ul><ul><li>Non-insured plans </li></ul><ul><li>Insured plans </li></ul>Defined Contribution Plans
    27. 27. Defined Contribution Plans <ul><li>Two basic forms of defined contribution plans: </li></ul><ul><li>Pension plans </li></ul><ul><li>Profit sharing plans </li></ul>
    28. 28. Defined Contribution Plans Profit Sharing <ul><li>Features: </li></ul><ul><li>Maximum funding flexibility </li></ul><ul><li>Employer contributions are discretionary </li></ul>
    29. 29. <ul><li>Contribution flexibility with small to medium sized businesses </li></ul><ul><li>Ability to reward employees in profitable years is profit popular with larger, well-established companies </li></ul>Defined Contribution Plans Profit Sharing
    30. 30. <ul><li>Tax Factors: </li></ul><ul><li>Maximum employer deductible contribution 25% of the total payroll of all participants in the plan </li></ul><ul><li>Maximum individual allocation amount of lesser of 100% of compensation or $45,000 </li></ul><ul><li>Must intend to fund on regular basis </li></ul><ul><li>Allocation formula must be defined </li></ul>Defined Contribution Plans Profit Sharing
    31. 31. <ul><li>Contributions do not have to be the same for all plan participants </li></ul><ul><li>Forfeitures may be used to further increase participants' benefits </li></ul>Defined Contribution Plans Profit Sharing
    32. 32. <ul><li>How it works: </li></ul>Total company contribution – $50,000 Total 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 total contribution Compensation Profit Sharing Account Defined Contribution Plans Profit Sharing
    33. 33. Defined Contribution Plans <ul><li>Traditional plans </li></ul><ul><li>Age–weighted </li></ul><ul><li>New comparability </li></ul><ul><li>All favor businesses in which the owners and key employees are older OR more highly compensated </li></ul>Types of Profit Sharing Plans:
    34. 34. Defined Contribution Plans 401(k) <ul><li>Profit sharing plan </li></ul><ul><li>Elective deferrals </li></ul>
    35. 35. Defined Contribution Plans 401(k) <ul><li>Provides the profit sharing concept </li></ul><ul><li>Gives employees tax-advantage way to save for themselves </li></ul><ul><li>Profit Sharing Plan </li></ul><ul><li>Elective deferrals </li></ul>
    36. 36. <ul><li>Must Meet Actual Deferral Percentage Tests: </li></ul><ul><li>Matching contribution tests, </li></ul><ul><li>or </li></ul><ul><li>Contribution made to every rank and-file participant’s account </li></ul>Defined Contribution Plans 401(k)
    37. 37. Defined Contribution Plans <ul><li>Unlike profit sharing and 401(k) plans, a defined contribution pension plan obligates an employer to a specific contribution amount. </li></ul>
    38. 38. Defined Contribution Plans <ul><li>Most common forms of defined contribution pension plan are: </li></ul><ul><li>Money purchase plans </li></ul><ul><li>Target benefit plans </li></ul>
    39. 39. Defined Contribution Plans <ul><li>Questions </li></ul><ul><li>and </li></ul><ul><li>Distribution Options </li></ul>
    40. 40. Distribution Planning <ul><li>Insure a lifetime income level: </li></ul>Recalculate annual/monthly/quarterly distribution from plan every year or Use 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.
    41. 41. Distribution Planning Immediate Annuity <ul><li>Guarantees payments over lifetime </li></ul><ul><li>Ability to ensure retirement income for spousal survivors </li></ul>
    42. 42. Distribution Planning <ul><li>Types of Annuities: </li></ul><ul><li>Single premium fixed interest deferred annuities </li></ul><ul><li>Single premium variable deferred annuities </li></ul><ul><li>Flexible premium variable deferred annuities </li></ul><ul><li>Single premium fixed interest immediate annuities </li></ul><ul><li>Single premium variable immediate annuities </li></ul>Sentinel Advantage Variable Annuity, form series 7400/7401/7400ID(0199)/7401ID(0199), is issued by National Life and distributed by 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.
    43. 43. Distribution Planning Deferred Annuities <ul><li>Features: </li></ul><ul><li>Accumulate tax-deferred </li></ul><ul><li>Takes advantage of compound interest </li></ul>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.
    44. 44. Distribution Planning Annuity Income Option <ul><li>Benefits remaining at death may be forfeited </li></ul><ul><li>Benefits may be passed onto surviving spouse </li></ul><ul><li>Benefits may be guaranteed for certain amount of time </li></ul>
    45. 45. Defined Benefit Plans <ul><li>Features: </li></ul><ul><li>Provides retirement income of determinable amount for life </li></ul><ul><li>Formulas recognize age, salary and service </li></ul>
    46. 46. Defined Benefit Plans Calculation: <ul><li>Contribution is calculated annually by an enrolled actuary </li></ul><ul><li>Based on the value of future estimated benefits </li></ul>
    47. 47. Defined Benefit Plans <ul><li>Tax Factors: </li></ul><ul><li>Maximum annual benefit (200 7 ) is lesser of $1 80 ,000 </li></ul><ul><li>or </li></ul><ul><li>average compensation in last 3 years of work </li></ul><ul><li>No specific contribution limit </li></ul>
    48. 48. Defined Benefit Plans <ul><li>Social Security Integration: </li></ul><ul><li>May enhance benefits for owners and other higher-compensated employees </li></ul><ul><li>May reduce the cost of including lower-paid employees in the plan </li></ul>
    49. 49. Defined Benefit Plans 412(i) <ul><li>Suitable for small businesses </li></ul><ul><li>Funded with life insurance and annuities </li></ul><ul><ul><li>Provides death benefits from day 1 </li></ul></ul><ul><ul><li>Policy values fund defined benefit at retirement </li></ul></ul><ul><ul><li>Maximum tax-deductible contribution </li></ul></ul>Features:
    50. 50. <ul><li>Maximum owner’s retirement benefit </li></ul><ul><li>Fully insured, pre-determined benefit amount </li></ul><ul><li>Large deductions due to lower plan assumptions </li></ul>Defined Benefit Plans 412(i) Features:
    51. 51. <ul><li>Benefits: </li></ul>Defined Benefit Plans 412(i) <ul><li>Easy to explain </li></ul><ul><li>Does not require enrolled actuary </li></ul><ul><li>Employer contributions tax deductible </li></ul><ul><li>Contributions not taxable to employees until withdrawn </li></ul>
    52. 52. Hybrid Plans <ul><li>Plans have features of both defined benefit and defined contribution plans </li></ul><ul><li>Cash Balance Plans </li></ul><ul><ul><li>Hypothetical Accounts </li></ul></ul><ul><ul><li>Defined Benefit Limits </li></ul></ul>
    53. 53. Combining Plans <ul><li>Maximize contributions by having </li></ul><ul><li>both a defined benefit and a defined contribution plan </li></ul><ul><li>May have fully deductible defined benefit plan and make a 6% deductible contribution to a defined contribution plan </li></ul><ul><li>Sophisticated carve out and floor offset designs </li></ul>
    54. 54. Retirement Planning Summary <ul><li>Retirement planning is critical to the business owner who must plan retirement wisely if his or her business is to survive an ownership transfer. </li></ul>
    55. 55. Retirement Planning <ul><li>Questions </li></ul><ul><li>& Answers </li></ul>
    56. 56. Thank You