Retirement Planning for Small Business Owners


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Greg Stevens, CFP, CRPS, senior financial counselor at Cabot Money Management, Inc., gives an introduction to the various retirement vehicles that are available to today's small business owner.

Disclosure: These seminars are for discussion purposes only. It is not an offer to buy or sell individual securities or investments. Investors should consider their own individual investment objectives, risks, charges and expenses of their portfolio carefully before investing. Investments are not FDIC insured and may lose or fluctuate in value. Please request our Form ADV Part II for complete disclosures.

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Retirement Planning for Small Business Owners

  1. 1. Retirement Planning Options for the Small Business Owner<br />Greg Stevens, CFP®<br />Senior Financial Counselor<br />
  2. 2. Does this look familiar to anyone?<br />
  3. 3. AGENDA<br /><ul><li>Who is Cabot?
  4. 4. What are our capabilities?
  5. 5. Why offer a retirement plan?
  6. 6. What are my options?
  7. 7. How can Cabot help?</li></li></ul><li>WHO IS CABOT?<br /><ul><li>Founded in 1983 solely as an investment firm
  8. 8. Has since developed into an integrated wealth management firm
  9. 9. Incorporated institutional money manager component
  10. 10. History of working with high net work individuals, endowments, foundations and non-profits</li></li></ul><li>WHO IS CABOT?<br /><ul><li>Approximately $471.7M in AUM (as of 8/31/2010)
  11. 11. Access to leading research on Wall Street
  12. 12. Opportunistic investment style
  13. 13. Trading/technological capabilities enable Cabot to get access to local shares in other markets
  14. 14. Research staff visits companies and countries, which helps enhance research and stock-picking process</li></li></ul><li>WHO IS CABOT?<br /><ul><li>Firm with national client base and national media exposure
  15. 15. CNBC, Bloomberg, FOX Business, Reuters, etc.
  16. 16. Fully staffed service group
  17. 17. Access to Wall Street Research in addition to own proprietary research
  18. 18. Small firm with “big firm” capabilities</li></li></ul><li>PORTFOLIO MANAGEMENT TEAM<br />Les Satlow<br />Rob Lutts<br />Chartered Financial Analyst<br />Equity Portfolio Manager<br />President, Chief Investment Officer<br />Founder of Cabot Money Management<br />Dennis Wassung, Jr.<br />Bill Larkin, Jr.<br />Chartered Financial Analyst<br />Associate Portfolio Manager<br />Fixed-Income Portfolio Manager<br />
  19. 19. ASSET ALLOCATION<br /><ul><li>Building positions over time when appropriate
  20. 20. Limiting the size of individual positions (typically to 5% of value)
  21. 21. Diversifying positions across sectors, industries, and geographies
  22. 22. Employing a loss discipline process intends to provide:</li></ul>Protection of principal during times of market distress<br />Objectivity when a position moves counter to our investment thesis<br />Attempt to utilize a 20% loss threshold for action<br />
  23. 23. WHY INSTITUTE A RETIREMENT PLAN?<br /><ul><li>Opportunity to invest significant money for retirement
  24. 24. All earnings are tax deferred
  25. 25. All contributions are made are either pre tax or are tax deductible
  26. 26. Can be offered as an employee benefit
  27. 27. Allows the business owner a way to compensate employees for their contribution to the business
  28. 28. Can be used to attract and keep employees in a difficult labor market</li></li></ul><li>WHY INSTITUTE A RETIREMENT PLAN?<br /><ul><li>“Dramatically high percentages of Americans -- even in the upper-income categories -- are likely to run short of money after 10 or 20 years of retirement.”*
  29. 29. “13% of the wealthiest quartile of Americans are in danger of churning through their savings within 20 years of retirement.”*
  30. 30. Uncertainty over Social Security</li></ul>*Based on a study conducted by the Employee Benefit Research Institute<br />
  31. 31. What Are My Options?<br /><ul><li>SEP
  32. 32. SIMPLE
  33. 33. Solo 401K
  34. 34. Defined Benefit Plan</li></li></ul><li>SEP<br /><ul><li>Considered a small business “profit sharing” plan.
  35. 35. Contribution limits: Lesser of 25% of compensation (20% of SE earnings) or $49K.
  36. 36. No “catch up” provision.
  37. 37. Contributions are vested immediately.
  38. 38. Contributions are tax deductible to the employer, tax-deferred growth of assets for the employee.
  39. 39. Best suited for individual w/ part-time business , OR
  40. 40. Any type of business with a small number of employees.</li></li></ul><li>SEP ELIGIBILITY<br /><ul><li>Age 21 or older
  41. 41. Must have worked for the employer for at least three of the prior five years
  42. 42. Have earned at least a minimum amount of compensation for the year ($550 in 2010)</li></li></ul><li>SEP: Advantages/Disadvantages<br /><ul><li>High contributions limits
  43. 43. Tax deferred contributions can be made even if the participant is enrolled in a 401k (great for consulting income)
  44. 44. Very inexpensive to administer
  45. 45. Flexible contributions schedule (can decide each year whether or not to add money)
  46. 46. Every eligible employee must have a SEP established on their behalf.
  47. 47. Contributions must be made to every eligible employee
  48. 48. Employees cannot defer their own salary to the plan</li></li></ul><li>SIMPLE PLANS<br /><ul><li>SIMPLE (savings incentive match plan for employees)
  49. 49. Limited to companies with no more than 100 employees
  50. 50. Employees must have earned at least $5K
  51. 51. Employees can defer up to $11,500 (2010) or 100% of comp, which ever is less
  52. 52. $2,500 “catch up” if over 50 years old
  53. 53. Employer deferral requirement:
  54. 54. Match up to 3% of employee’s total compensation if they contribute, or
  55. 55. Match 2% of employee’s compensation, even if employee is not participating in the plan.</li></li></ul><li>SIMPLE PLANS: Advantages/Disadvantages<br /><ul><li>Easy and inexpensive to set up an administer
  56. 56. Allows employees a vehicle to save (employee deferrals)
  57. 57. Offers the over 50 “catch up”
  58. 58. Lower contribution limits than other plans (ie 401k)
  59. 59. Employers are forced to make matching contributions on behalf of the employees</li></li></ul><li>SOLO 401K PLANS<br /><ul><li>Designed for business where the owner/spouse are the sole employees
  60. 60. Great for consultants, sole practitioners, contractors, etc.
  61. 61. Contributions are “split” btw. employee deferrals and profit-sharing
  62. 62. Maximum deferral: lesser of $16,500 (2010) or income
  63. 63. $5500 “catch up”
  64. 64. The “Business” can contribute 25% of owner’s income
  65. 65. The maximum combined contribution is $49K (2010)</li></li></ul><li>SOLO 401K: Advantages/Disadvantages<br /><ul><li>Much easier to administer and set up than a traditional 401k (no nondiscrimination testing required)
  66. 66. Contributions are discretionary year to year
  67. 67. Can provide for loans and hardship withdrawals
  68. 68. Accepts rollovers from other qualified plans
  69. 69. Can be established as a ROTH (tax free growth of assets)
  70. 70. Not a great fit for employers that intend to hire employees (plan must be converted to a traditional 401k)</li></li></ul><li>DEFINED BENEFIT PLAN<br /><ul><li>Very high contribution limits (annual contributions can exceed $200K )
  71. 71. Contribution levels are determined by an actuary
  72. 72. Contributions MUST be made each year based on the actuarial calculations
  73. 73. Contributions are based on a projected retirement “benefit”
  74. 74. Ideal for sole proprietor over 50 yrs in age with a high level of income.
  75. 75. Contributions must be made on behalf of any employees
  76. 76. Can be combined with a 401k plan to further increase contribution level
  77. 77. Eligibility can be set at 1 year of service and 1000 hours per year to exclude part time employees </li></li></ul><li>DB PLAN: Advantages/Disadvantages<br /><ul><li>Contributions are tax deductible and grow tax deferred
  78. 78. Can be established by any business entity
  79. 79. Plan can be amended to adjust annual contribution, if business conditions change
  80. 80. Annual administrative costs are higher than many other plan types
  81. 81. If a firm has multiple employees, the contribution requirements can be onerous</li></li></ul><li>HOW CAN CABOT HELP?<br /><ul><li>Customized asset allocation
  82. 82. Ability to integrate the retirement plan with your overall financial planning needs
  83. 83. A history of managing money for high net worth individuals and endowments
  84. 84. We can help trustees with their fiduciary obligations (i.e. educational meetings, ensure diversification of assets, etc.)</li></li></ul><li>HOW CAN CABOT HELP?<br /><ul><li>Referral to firms we work with that can administer plans (TPAs, actuaries)
  85. 85. Assets are held at Charles Schwab, Cabot oversees the management
  86. 86. We can act as a resource for any employees you have in the plan </li></li></ul><li>QUESTIONS?<br />