As we honor Women’s History Month, it’s pivotal to recall its roots as a national observance. Initiated in 1981 through a congressional resolution, it started as “Women’s History Week” on March 7, 1982. This celebration expanded in 1987, thanks to advocacy from the National Women’s History Project, leading Congress to designate March as “Women’s History Month.” This observance not only commemorates the substantial contributions women have made to the United States but also highlights their remarkable achievements across various sectors of American history.
Empowerment Through Entrepreneurship
As an entrepreneur, your journey is marked by determination and innovation. Whether you’ve embarked on this venture solo or alongside partners, your success is evident in the growth of your business and the team you’ve built. Now, as you look toward the future, considerations about retirement — for both yourself and your employees — become increasingly significant.
Attracting and retaining top talent, particularly those with critical skills, is often achievable through competitive retirement benefits. However, small business owners might find the process of offering employee-sponsored retirement plans daunting, potentially affecting employee retention.
Simplifying Retirement Plans for Business Owners
The process of sponsoring retirement plans is far more straightforward than many business owners perceive. Concerns about funding, complex paperwork, or compensating top executives without escalating their tax burdens are common. Yet, support and guidance in establishing and managing retirement plans are readily available, paving the way for a smooth transition into retirement.
Exploring Qualified Retirement Plans
A wide array of retirement plan options is available to business owners, encompassing everything from traditional defined benefit plans and versatile 401(k)s to Savings Incentive Match Plans for Employees (SIMPLEs), Simplified Employee Pensions (SEPs), dynamic profit-sharing schemes, and structured money purchase plans.
These diverse plans are all under the purview of the Employee Retirement Income Security Act (ERISA) of 1974, a pivotal piece of legislation that ensures these financial vehicles operate with integrity, specifically aiming to prevent any discriminatory practices that could unduly favor employees with higher compensation over their lower-paid counterparts. By adhering to ERISA guidelines, these plans support tax-deductible contributions and facilitate tax-deferred growth on earnings, thereby laying a robust foundation for both your own financial future and that of your employees, ensuring a more secure and equitable retirement savings landscape.
Navigating Nonqualified Retirement Plans
Nonqualified retirement plans provide a distinct alternative to their qualified counterparts, centering on deferred compensation for a specific group of employees, usually those in high-earning executive positions. While these plans may not offer the immediate tax benefits associated with qualified plans, they play an indispensable role in strategic tax planning and are instrumental in bolstering employee retention efforts.
Unlike qualified plans, which are strictly regulated by federal laws, nonqualified plans are primarily governed by legal agreements between the employer and employee. This unique regulatory framework grants employers the flexibility to devise innovative funding strategies, such as leveraging stock options and utilizing life insurance policies. Additionally, these plans often incorporate specialized provisions like rabbi trusts, which are designed to ensure the secure and guaranteed future payout of deferred compensation, thereby offering a measure of financial security and incentive for key employees to remain with the company over the long term.
Leveraging Financial Advisory Services
Choosing the right retirement plan depends on your unique business needs and retirement goals. Understanding the nuances between defined benefit and defined contribution plans is essential for offering meaningful benefits to your employees and securing your financial future. Engaging with a financial advisor can provide you with the insight and guidance needed to navigate these choices effectively.
As we celebrate Women’s History Month, let’s recognize the entrepreneurial spirit of women business owners and the importance of planning for the future through strategic retirement planning. Legacy Private Trust Company is here to support you in these endeavors, ensuring a prosperous and secure future for you and your employees.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
