Small Business Retirement Presentation Maricopa SBDC 9-2012

1. A Business Owner’s Flight Plan for Retirement
Debra Roubik
Business Analyst
Small Business Development Center
September 5, 2012

2. A Business Owner's Flight Plan for
Retirement
Inevitable Phases of a Business Owner

3. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing

4. A Business Owner's Flight Plan for
Retirement
Inevitable Phases of a Business
Owner
Need a Plan to Reflect the Stage
you are in!

5. Why Be Concerned About Retirement?

6. Why Be Concerned About Retirement?

7. Why Be Concerned About Retirement?
OR

8. Why Be Concerned About Retirement?
“IRA ownership rate for business owners is only about 36 percent, and only
one-third of business owners with an IRA contributed for the 2005 tax year.
Less than 2 percent of business owners own a Keogh plan. Only about 18
percent of business owners participated in a 401(k)/Thrift plan.”
--Small Business Administration, Office of Advocacy
 Recession has exacerbated a lack of retirement savings as business
owners have been forced to withdraw funds to keep afloat
 My experiences as a business owner and financial analyst

9. A Business Owner's Flight Plan for Retirement
 Launch Phase
Did you know that you may be able to use your current retirement funds
to invest in your own company?
o Take a loan against the funds– Restricted according to your fund
o Cash out the funds– Penalties, taxes and loss of retirement savings
o Investment Retirement Financing

10. A Business Owner's Flight Plan for Retirement
 Launch Phase
Retirement Investment Financing
o CURRENT 401(k) or IRA
o Balance of over $50,000

11. A Business Owner's Flight Plan for Retirement
 Launch Phase

12. Risks
 Do this wrong and you risk paying taxes on your retirement savings
as well as facing hefty penalties.
 Be very cautious about using your nest egg for a business start-up.
You could lose it all!
 Fees for setting this up run as much as $5,000.
 Such investments fall into a gray area of the law, according to tax
experts. So, consult with a tax attorney or a company specializing in
this type of funding.

13. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Pre-launch and launch support is gone. So, the goal is to control
expenses and focus on increasing sales.
o Lack of time, funds.

14. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Payroll Deduction IRA
o Payroll Deduction Roth IRA
o SEP (Simplified Employee Pension) IRA
o Profit Sharing

15. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Payroll Deduction IRA
• Limited to $5,000
• No incentives to employees to hang on and help grow the
company or increase profits
o Payroll Deduction Roth IRA
o SEP IRA
o Profit Sharing

16. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Payroll Deduction IRA
o Payroll Deduction Roth IRA
• Taxes paid on contribution– not when withdrawn
o SEP IRA
o Profit Sharing

17. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Payroll Deduction IRA
o Payroll Deduction Roth IRA
o SEP IRA
• All employees over 21 who have worked 3 out of the last 5
years and earned over $550 a year are eligible
• Contributions flexible, but must be same percentage of
compensation
• Employees can still add up to $5,000 a year to another IRA
account
• No paperwork or testing
o Profit Sharing

18. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
o Payroll Deduction IRA
o Payroll Deduction Roth IRA
o SEP IRA
o Profit Sharing
• DISCRETIONARY contributions
• Flexibility
• Vesting can be formulated to retain employees during
tumultuous times

19. Costs of Profit Sharing
 Fees for trustee, service administrator.
 Nondiscrimination testing: Cannot treat higher-performing
employees different from rank-and-file. But, you can base the
contributions on percentage of income.
 Must be diligent with documentation.

20. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
o Solid growth rates
o Standardizing procedures

21. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
o SIMPLE (Savings Incentive Match Plan for Employees) IRA
o 401(k)

22. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
o SIMPLE (Savings Incentive Match Plan for Employees) IRA
• Can be a SIMPLE IRA or SIMPLE 401(k)
• Must have less than 100 employees earning at least $5,000 and
no other retirement plan
• Employer either MATCHES salary deferrals of employee
following a legal formula or contributes a non-elective 2% of
compensation
• No nondiscrimination or top-heavy testing for SIMPLE IRA.
But, form 5500 must be filed for SIMPLE 401(k)
o 401(k)

23. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
o SIMPLE (Savings Incentive Match Plan for Employees) IRA
o 401(k)
• .A salary-reduction program for employees
• Flexibility in picking contributions by employer (Profit sharing
or matching)

24. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing
o Defined Benefit Plan
o 412 Plan
o Self-directed IRA
o Employee Stock Ownership Program

25. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing
o Defined Benefit Plan
• Provides for specific amount at retirement
• Contribution based on actuarial assessment of eligible
employee’s ages, salaries and interest rate environment
• Contributions could be high
o 412 Plan
o Self-directed IRA
o Employee Stock Ownership Program

26. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing
o Defined Benefit Plan
o 412 Plan
• Must be funded in annuities and life insurance
• Better for highly taxed, profitable companies
o Self-directed IRA
o Employee Stock Ownership Program

27. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing
o Defined Benefit Plan
o 412 Plan
o Self-directed IRA
• Allows owner to make own investment decisions in non-
traditional markets
o Employee Stock Ownership Program

28. A Business Owner's Flight Plan for Retirement
 Launch Phase
 Separation from the Solid Rocket Boosters
 Orbiting
 Landing
o Defined Benefit Plan
o 412 Plan
o Self-directed IRA
o Employee Stock Ownership Program
• Not a good program for the business owner, but a great way to
“pass down” the company for exit planning
• Employees retirement not diversified
• Costs at least $40,000 to set up

29. Summary
Great source to navigate your choices:
IRS Retirement Plans Navigator
http://www.retirementplans.irs.gov/

30. References
 http://www.businessmoneytoday.com/bootstrapping/retirement-
funds.php
 http://guides.wsj.com/small-business/funding/how-to-tap-an-ira-or-
401k-to-help-fund-a-start-up/
 http://www.dol.gov/ebsa/pdf/profitsharing.pdf
 http://www.sba.gov/advocacy/7540/12260