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Simply good business

Taking care of your employees is good business

Business owners are increasingly realizing that it is simply good business to help their employees prepare for their retirement. There are various retirement plans which are available to employees in their search for peace of mind when it comes to their financial future. For example, retirement plans include

 
  • 401(k) and 403(b) plans
  • Individual retirement accounts
  • ​Life insurance for individuals and groups
  • Workplace plans: for example, disability insurance and dental care
  • Group annuitie

It is very difficult to dispute the income and protection advantages of an annuity. Retirement assets are expected to double by 2030, with pensions going away and social security facing its own share of challenges, annuities will likely fill the gap. Therefore, it is not surprising that many businesses are already providing group annuities for their employees.

GROUP ANNUITIES

Annuities are insurance contracts that turn lump sums, or long-term savings into streams of income in later years. Group annuity contracts are offered by employers and are usually held in a trust, or some other entity, for the benefit of the employee.

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QUALIFIED PLANS

Business owners can enjoy of tax benefits when they set up retirement plans for their employees. These plans can be effective tools in retaining employees. Qualified plans meet the requirements of Internal Revenue Code Section 401(a).  Businesses with these plans receive a tax break for the contributions they make for their employees. Plans that allow employees to defer a portion of their salaries into the plan also reduce employees’ present income-tax liability by reducing taxable income. These plans can provide many benefits to the business owner. These include:
  • A qualified plan can provide most of the benefits to the business owner. Therefore more dollars can be channeled into retirement planning.
  • Contributions are not taxable to the employee

Business owners can purchase life insurance through a qualified plan

Business owners who purchase life insurance through a qualified plan can reduce their tax dollars. Other advantages include:
  • Premiums are paid with tax-deductible plan contribution dollars, freeing up personal dollars
  • If the business owner dies before he or she has built up a retirement account then the life insurance proceeds can help loved ones to maintain their lifestyle.
  • The policy can be transferred to you, the business owner, at retirement, thereby providing continuous personal protection for you and your loved ones
If you were to purchase the same amount of life insurance outside of a qualified plan, you would need to increase your income in order to net the same premium paid from qualified plan dollars.

Purchasing life insurance through your qualified plan

Buying life insurance inside your qualified plan may be an affordable, tax-efficient way of meeting both your business and personal insurance needs. Advantages include:
  • Premium payments that are made by the business are tax-deductible
  • Should death occur before you’ve had time to accumulate your retirement account, the life insurance proceeds can help complete your retirement savings for your family
  • At retirement, the policy can be transferred to you to personally own, providing continuous personal protection for you and your beneficiaries

How does life insurance in your plan unleash money for you?

If you were to purchase the same amount of life insurance outside your qualified plan, you would need to gross up your income in order to net the same premium paid from qualified plan dollars.

How it works:

  • The policy is applied for and owned by your pension trust, however, you name who the beneficiary will be of the insurance proceeds
  • A portion of your deductible plan contribution is used to pay the insurance premium
  • The life insurance cash value is attributed to your retirement savings, and because it is accumulated using pre-tax dollars, is subject to income taxes when received either through distribution at retirement or upon death
  • The death benefit in excess of the cash value is received by your beneficiary income-tax free
  • Because your pension is providing a tax-free benefit to your beneficiary, you will need to pay a small annual tax on this “economic benefit” which may be recovered at retirement
  • At retirement, the insurance policy can be transferred to you as part of your retirement distribution
  • Once you personally own the life insurance policy, you may choose to access the policy cash value, through loans and withdrawals, to help supplement your retirement income**
Let us assess your  life insurance needs, you may want to consider purchasing any that is required a qualified plan to reduce tax liabilities.

QUALIFIED PLANS

A non-qualified plan does not meet the guidelines of ERISA (employee retirement income security act). These plans are geared towards executives and key employees.  
 

BUSINESS CONTINUATION

A non-qualified plan does not meet the guidelines of ERISA (employee retirement income security act). These plans are geared towards executives and key employees. 

We protect your business while you attend to your business.

It is clear that you have taken important and successful steps to establish and operate your business. It is equally important to take the right steps to make sure your business can survive the retirement, disability or death of an owner or key employee. Any one of these events, or a combination of them, can significantly impair your business, or force it to close in a relatively short period of time, not necessarily because something wrong was done, but because nothing was done. All too often families and employees suffer unnecessarily. At FFA our goal is to protect your business from the financial impact of these events

What is your business worth?

Very few owners know what their business is worth, or have planned for the eventual transfer of their business interests. Good news! there are ways to stabilize and maximize the value of a business and transfer it, if so desired, under specific, controlled circumstances. Owners can protect their business from the loss of key talent, as well as retain control of it. To be sure, succession does not only relate to the management team, it relates also to the succession of the business itself.
 
FFA can work with you to estimate the appropriate amount of life insurance needed, within your business budget.

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