Module 1 - An Overview of Retirement Planning.docx

Other than current tax deductions business owners

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Other than current tax deductions, business owners might want to establish a retirement plan to shelter assets from business creditors and the potential of bankruptcy. Assets within the owner’s personal retirement account are treated as personal assets. Business types like a corporation or an LLC offer protection of personal assets in the event of a business collapse. Also, a business owner might offer a retirement benefit because it will mean that they can pay their employees less in wages because the retirement benefit enhances their overall compensation package. Think attraction and retention but with a cost-conscious focus.
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This brings us to a concept that I once heard in a study session through Ken Zahn in their CERTIFIED FINANCIAL PLANNER TM prep program...An employer’s need to offer a plan can be neatly summed up with the four R’s of retirement planning : Recruit; Retain; Reward; Retire. On some level, all employers want to recruit the best talent, retain the best people that they have trained, reward those who contribute to the firm’s success and help those valued employees retire when the time is right. Small business owners often try to maximize their own personal benefit, but there are those who seek the best interest of their employees as well. The comment about personal wealth maximization is a supported stereotype, but one that is fed by many small business owners in practice. I would advocate that happy employees will make for happier owners... Non-Employer Options While it is a great deal for employees if their employer offers a plan...not all do. When an employer does not offer a plan, the taxpayer needs to take the initiative to save independently. One option for such a scenario is a traditional IRA. This is very similar to a 401(k) but with a few limitations and lower contribution limits. Another option is a Roth IRA. You will learn specifics about this saving vehicle later in the course, but for now, just know that it has some unique tax considerations. An uncovered employee could also choose to forego the tax-advantaged world and just buy an asset in a taxable account. This could involve opening an account at a place like TD Ameritrade or Vanguard to purchase investments. Of course, there is always the option of just using a savings account or a CD at your local bank. This last option will result in the smallest amount of investment gain, but it does offer the most security of principle (the original amount invested). Another strategy that some deploy is to simply stash cash in their mattress. I am serious. See this article (Links to an external site.)Links to an external site. . I do not recommend this option unless you sleep on a bank (not very soft these days). If you put money in your mattress (or in any other place) you had better keep track of it and guard it very closely...
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