Need Help With Choosing A Retirement Account

17 replies [Last post]
NEVER_proprietary's picture
Joined: 2009-12-02

 I have a client, husband & wife (48years old), who own a small business in NY with 1 full-time employee. Client currently has 2 simple ira's worth approx. 120k and contribute the max each year. They want to contribute more than the 23k a year and offer something to attract new employees.
 
 I'm thinking a sep ira for the husband & wife which will allow them to put away 98k year with no immediate increase in admin costs to them and having them contribute to thier full-time employee's simple ira or just give the employee a cash bonus with this economy. My buddy recommended to set up a 401k safe harbor plan but I think it's a bit premature with TPA, costs, complexity, etc.
 
Any ideas?

B24's picture
B24
Offline
Joined: 2008-07-08

NP,
 
You better check the rules on SEP's.  Specifically look at the amount that would requried of them to contribute to their employees if they each contributed 49K (the max).  I am guessing the % would be pretty significant (probably close to 25% max, but I don't know what 49K equates to compared to their incomes), and more than they are willing to give away to their employees.
 
If they can afford to put away 98K, they can afford the TPA costs.  Look at age weighted or other tiered plan.  Also, a DB plan might be worth a look.  Depends on employee situation.

NEVER_proprietary's picture
Joined: 2009-12-02

I'm meeting with their account next month so I'll have more info. The business had 400k net profits last year and have exceeded that for this year. They pay themselves each 50k each a year salary, so they def need to up that for a sep. He is really annoyed with paying taxes and is extremely frugal. Maybe I'll just go with the 401k SHP. I just don't feel like dealing with peoples employees making 60k a year whining about why their 4k account is doing this and that.

B24's picture
B24
Offline
Joined: 2008-07-08

I thought they only had 1 employee?
 
I'm telling you, look at the DB plan.  Problem is, many CPA's don't understand them.  But this will allow them to put away a ton (virtually uncapped), and also (potentially) limit the contribution to the employees.  But it depends on specifics.  Talk to a CPA or TPA that really knows DB plans.  Sometimes a wholesaler can point you to a good one. 

NEVER_proprietary's picture
Joined: 2009-12-02

This client does have 1 full-time employee but I was speaking in general.  I'll re-look at the DB and several other options before metting the CPA. Thanks for the info.

LA Broker's picture
Offline
Joined: 2008-12-03

DB plan is one good idea, also, you can do a prototype 401K safe harbor for almost nothing, couple hundred bucks and add new comp for the profit sharing.  This will be more flexable than a SEP if they bring more employees on board.  I used to use a company called PAI for those small plans. 

buyandhold's picture
Offline
Joined: 2008-09-23

Oppenheimer has a Owner 401k that has reasonable setup fees.

anonymous's picture
Offline
Joined: 2005-09-29

NEVER_proprietary wrote: I have a client, husband & wife (48years old), who own a small business in NY with 1 full-time employee. Client currently has 2 simple ira's worth approx. 120k and contribute the max each year. They want to contribute more than the 23k a year and offer something to attract new employees.
 
 I'm thinking a sep ira for the husband & wife which will allow them to put away 98k year with no immediate increase in admin costs to them and having them contribute to thier full-time employee's simple ira or just give the employee a cash bonus with this economy. My buddy recommended to set up a 401k safe harbor plan but I think it's a bit premature with TPA, costs, complexity, etc.
 
Any ideas?

 
My idea is to get a mentor and do joint work.  Otherwise, your lack of knowledge is going to screw your clients.
 
1) Only the business can contribute to a SEP plan.
2) The business must contribute the same % to everybody.
3) A safe harbor is used because it gets rid of the complexity.

anonymous's picture
Offline
Joined: 2005-09-29

NEVER_proprietary wrote:This client does have 1 full-time employee but I was speaking in general.  I'll re-look at the DB and several other options before metting the CPA. Thanks for the info.

If you are doing something other than the SIMPLE, you better act immediately.

B24's picture
B24
Offline
Joined: 2008-07-08

buyandhold wrote:Oppenheimer has a Owner 401k that has reasonable setup fees.
 
He's got employees.  But Oppenheimer is a good bundled option for SH 401K.  They are less expensive than insurance company plans.

NEVER_proprietary's picture
Joined: 2009-12-02

They have 1 full-time employee.

Moraen's picture
Offline
Joined: 2009-01-22

AGEMAN wrote: You should get someone from one of the fund companies to help you with this case since you don't seem to be very well versed in the plans.  It won't reduce what you make at all.  They will do almost everything for you.
Oppenheimer or Hartford are good for this.

Don't do this. If you use a wholesaler, they are pushing their product, which may or may not be in the client's best interest. That's what these brokers who call themselves advisors do.

Learn more about retirement plans.

Moraen's picture
Offline
Joined: 2009-01-22

You told him he should get someone from one of the fund companies to help with the plan BECAUSE he wasn't well versed in plans. You also talked about his compensation and that it wouldn't change.

That is not making the determination of which company's product is best for the client and THEN getting the wholesaler to sell the product.

If he doesn't know what's best, why is he going to get someone to sell it? He could get three different proposals from three different vendors and would have no idea which one would be appropriate.

I guess we go back to how do you pick mutual funds thread. Maybe the hottest wholesaler approach will work.

theironhorse's picture
Offline
Joined: 2007-03-03

check out PAI as mentioned before.  most fund companies have arrangements with them.  even if you use Oppenheimer or Franklin Templeton you can use the fund company wholesalers for case design and meetings, but still use PAI as the bundled tpa.  very low cost for what you can get.  another company you may want to consider if mutual funds are all you want to mess around with is ftjfundchoice.
i would not consider a sep for these people, nor a solo k.  my initial reaction was to check into a safe harbor 401k, and possibly look at a profit share with it.

RationalExuberance's picture
Joined: 2009-11-30

I would at least get a proposal on a DB plan. The TPA fees may seem high at first, but the amount of money they can shelter from taxes is incredible. If the 1 employee is sufficiently young, a DB is most likely the best option (maybe ask for a proposal with 401k plus cash balance).

Please or Register to post comments.

Industry Newsletters
Investment Category Sponsor Links

 

Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×