Deep Dive Into Qualified Retirement Plan Strategies
07 / 19 / 22

Deep Dive Into Qualified Retirement Plan Strategies

The 401k is just one example of a qualified retirement plan.

There are other types of qualified plans business owners should consider, as well.

What are those plans? What’s the difference between them? And how can you design your overall retirement plan strategy for maximum benefit to employees, the company, and you?

In Episode 29 of The 3 Wins Podcast, Legacy’s Russ Clemmer sits down with Nick Westmoreland who shares his insights and expertise.

Nick is a Qualified Plan Financial Consultant (QPFC) at ERISA Services, Inc., a third-party administrator focused on retirement plan design and tax-advantaged savings plans for small to mid-sized businesses.

If you’re a business owner looking for new strategies to attract and retain employees in a tight labor market, you don’t want to miss this episode!

Watch the full episode here. Below are the three big takeaways from the episode for easy reference.

(Watch Episode 29) 

Episode Highlights

Here are a few highlights from Episode 29 with Nick Westmoreland:

1. Factors to Consider When Designing a 401K

(Watch Here) 

Nick: A huge part of what we do is educate business owners on their peer companies and their competitors. A lot of times they may not have a good grasp on that.

They may know what a 401k is or they've heard of profit sharing. But they've never had somebody sit down and tell them the pros and cons of different plan types and ask them those meaningful questions: What are your goals? Who are your key employees? Who's the target of your retirement plan?

There may be an expectation based on different industries and what they do as their core business. Maybe it's more of a white-collar industry that, “Hey, you're gonna have a retirement plan.” That's just the expectation.

But then we have many other clients who may be less of their employees care about having a retirement plan. But the ones that do care, they care a lot. And so they're also trying to take care of those folks.

2. What Makes a Good Candidate for a Cash Balance Plan

(Watch Here)

Nick: The businesses that may be good candidates for cash balance plans would be owners looking to save more than $50,000 a year.

They could be businesses that already have an employer contribution where maybe they're funding 3, 4, or 5% of their employees’ pay as an employer contribution. So they're already comfortable with that concept. Then there are those companies that have sustained profitability and are looking for immediate tax benefits.

Another group that jumps out would be professional groups—physicians, attorneys, and industries like that. But we've put in cash balance plans for all kinds of business. Generally, they are closely held.

Cash Balance plans can also be even a tool to help transfer ownership.

We had a client that was a family farm. The mom and dad wanted to start talking about retirement. They had a son and daughter working on the farm, as well. And they wanted to start transferring ownership. And you can accomplish things like that in the cash balance plan.

So for the right candidate, those can be very meaningful tax planning strategies for sure.

3. Designing Cash Balance Plans for Succession Planning

(Watch Here)

In a cash balance plan, we're talking about owners receiving contributions well over the limits that they could otherwise get in a 401k plan. So right now those limits in a 401k plan would be $61,000, $67,500 for the year. So we're talking about a hundred, potentially, a couple hundred thousand dollars or more a year going to the owner or business owners.

A business could look at that and say—if they had incoming partners or, young owners coming aboard, or those that they would like to target for succession—Hey, for every, X amount of dollars that is deposited in the owner's account each year—maybe that's like $200,000, for an example—that represents 5% of equity that is moving over towards an incoming owner or one that would be part of that succession plan.

Obviously, that kind of plan would be a tax-deferred strategy helping build a great tax benefit and retirement account for the owner. What that means for the upcoming owners is that they are foregoing contributions in that plan. So, a lot of times they may not be receiving any contributions in that plan design. But they know that, hey, the current owners are gonna receive the lion's share of those employer contributions. But it's as they do that, it's representing equity that's coming over to the younger owners. And that could be designed to happen over 3, 5, or 10 years.

Connect with Nick. 

Connect with Russ.

Connect with Sean. 

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About the Author: Russell Clemmer is president of Legacy Advisory Partners, an Atlanta, Georgia-based financial services firm that believes that the key to unlocking your company’s full growth potential can be found in The 3 Wins Framework.

To learn more about how to apply The 3 Wins Framework in your business, download our FREE whitepaper, “The 3 Wins: How to Unleash the Collaboration Effect on Profits in Your Company,” here.