Wealth Prime Wealth Report

A Brief Retirement Plan Overview
When it comes to retirement planning, there are many different vehicles for business owners
to choose from, including; traditional IRAs, Roth IRAs, profit sharing plans, SIMPLE 401(k)s,
SEP IRAs, and more. It’s important to review the advantages and disadvantages of each with
your advisor or Third Party Administrator (TPA).
DISADVANTAGES OF ROTH IRAS VS
A ROTH 401(K) PLAN
Roth IRAs may seem very attractive given the tax
benefit. However, Roth IRAs are not available for
owners with income over $203,000. A Roth 401(k)
plan has no such limitation.
DISADVANTAGES OF A TRADITIONAL IRA VS
A 401(K) PLAN
Traditional IRAs are a popular savings vehicle,
particularly for individuals who don’t have access
to an employer sponsored plan. However, a major
downside of an IRA is its contribution limits. You’re
only able to contribute $5,000 annually to an
IRA and only $1,000 in catch-up contributions
if you’re over age 50. Versus a 401(k) plan, you
can contribute $19,000 annually and are allowed a
$6000 catch-up contribution over age 50.
DISADVANTAGES OF A SEP IRA VS A 401(K)
W/ PROFIT SHARING PLAN
Another popular plan available to all types of
employers is a Simplified Employee Pension (SEP).
SEPs allow an employer to make tax deductible
contributions to an employee’s tax-deferred IRA.
Most SEPs are free to employers to set up, but this
plan type lacks value and is an ineffective financial
planning tool. The downside of SEPs are many:
• Limits: Annual contribution limits are the
lesser of 25% of taxable income each year or
$56,000.
A 401(k) plan w/ Profit sharing plan allows for
$56,000 in annual contributions for those under 50
years of age, and $62,000 for those over 50. The
401(k) plan w/ Profit sharing plan also allow tiered
contributions based on employee groups reducing
expense, and vesting schedules can be determined
based on business goals.
THE POWER OF THE COMBO-K
The charts below demonstrate the increase in
contribution amounts you can receive and the
resulting asset growth over 15 years, compared to a
401(k) plan or 401(k) w/ profit sharing plan alone.
BUILDING WEALTH WITH
CASH BALANCE PLANS
Cash balance plans can help high-net-worth
individuals realize tax deductions and savings
rates up to 4x greater than a 401(k) plan alone.
And business owners can contribute hundreds of
thousands of dollars to their retirement each year–
experiencing significant tax benefits, as retirement
contributions are tax deductible.
Benefits of cash balance plans include:
• Reduce Taxes
• Asset Protection
• Attract and Retain Top Talent
• Accelerate Retirement Savings
• Flexibility and Portability
• Expense: The employer must contribute 25%
of total gross compensation to ALL eligible
participants equally. No variation by employee
is allowed.
• Vesting: All contributions are immediately
100% vested which can prove expensive to the
employer for shorter-tenured employees.
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