Daniel Calugar, Investor and Finance Professional, on Choosing the Best Retirement Plan for Your Business
For any business owner, retirement is a critical part of their business plan. With this fact of business life, it is never too early to consider updating your retirement plan. How do you create a formula for a high-quality retirement for you and your employees? Here, finance professional Daniel Calugar shares some ideas to consider in your planning process.
There are several things to consider when thinking about a business retirement plan. First, you must decide whether your company will offer a retirement plan to its employees. Then there are tax considerations. Finally, you must determine the type of plan that will be best for you and your employees.
Why offer a retirement plan.
Most Americans will need 70 to 90 percent of their pre-retirement income to maintain their current living standards. This fact is valid for both the business owner and the employees. As much as you love your business, you are not likely to want to work your entire life. Most people want to spend their golden years in a stress-free environment with time to pursue their passions.
Offering a retirement plan to your employees will help you attract the best workers. Employees are much more likely to stay with their employer if they feel supported. Offering a retirement plan is a good indication that you care about your workers’ long-term happiness.
What are the tax advantages?
There are many tax advantages, for you and your employees, to providing a company retirement plan. You, as the employer, can deduct the company contributions from your taxable income. In most cases, employee contributions are not taxed until they are withdrawn. And, money in the plan grows tax-free.
What are the plan options?
The three most common options are an IRA, a defined contribution plan, and a defined benefit plan. IRAs are easy to set up and, while it is an Individual Retirement Account, employers can help employees set up an IRA and contribute to the plan. The amount that an employee receives at retirement depends on the IRA’s funding and the earnings on those funds.
Defined contribution plans are employer-established and do not promise a specific benefit at retirement. Instead, you and your employees will contribute to the employees’ accounts under the plan. At retirement, the employee receives the accumulated contributions plus the earnings.
On the other hand, defined benefit plans promise a specified benefit at retirement. The benefit is usually based on a percentage of the employee’s pay multiplied by the number of years they worked for the company. Employer contributions must be sufficient to fund the promised benefits.
Regardless of the type of plan you choose for you and your employees, it is a win-win. You benefit from attracting and keeping the best employees, along with significant tax advantages. Your employees will feel secure in their future and vested in your success.
About Daniel Calugar
Daniel Calugar is a data-driven investor with an academic and professional background in computer science, business, and law. He developed a passion for investing due to frequent interaction with investment professionals who serviced his legal clients’ investment needs. As a tax partner at the Atlanta law firm of Hansell & Post and the global law firm of Jones Day, he incorporated his partnership interest to set up and serve as trustee for his tax-qualified profit-sharing plan. Calugar utilized his technical skill set to design computer programs that would help him make more effective investment decisions. When Dan is not working, he enjoys spending time working out and being with friends and family. As a pilot with over 2000 hours of single-pilot experience flying business jets, he enjoys flying volunteer flights for Angel Flight.