How to Improve Employee Benefits

Welcome to this week's edition of The Weekly Trail Report, where we share,

1 Story, where real stories of architects and engineers meet tailored financial strategies,

1 Actionable Tip, to provide actionable insights and guide you towards financial success,

1 Financial Term, to demystify key concepts and empower your decisions.

Whenever you’re ready, there are 2 ways I can help you:

1. Feeling Stuck? Take My 2-Minute Quiz!

Not sure where you're going wrong with your finances?

Take our 2-minute quiz, "Cash Flow is King: Unlock Your Financial Potential".

It's a simple yet powerful tool designed to identify the specific challenge holding you back.

Unlock Your Financial Potential

2. Ready to Transform Your Financial Future??

Schedule a complimentary consultation to unlock your financial potential.?

During our call, we will explore personalized strategies to help you overcome your financial challenges and achieve your goals.?

Your path to financial freedom starts with a deliberate choice today.

Schedule Your Free Consultation

1. Story: Jake Wants to Improve His Employee’s Benefits

Meet Jake, the owner of a growing architecture firm. After getting licensed, he had set off to start his own firm, and after 2 years in business had grown his client base enough that he needed to hire two other architects, and an admin to help manage the work being brought in.?

He was excited about the growth of his firm, and was determined to offer competitive benefits to his staff. Jake figured the best place to start would be setting up a group retirement plan, and he reached out for help determining the best option for his team.

“I tried to research it,” he said, “but there are so many different types of retirement accounts you can offer—which one is the best for my team?”

I wasn’t surprised—there are several different types of accounts, all with different incentives (both for employers and employees) so it can be difficult to assess which one is the best for your company.?

“Well, let’s talk a little more about your team, and what you’d like to offer them so I can get a better idea of what will work best.”

Here’s what we hammered out together:

1. All three employees had expressed interest in a company-sponsored retirement account
2. Jake himself was an employee of the business, and so would also contribute (4 people total)
3. He wasn’t quite ready to match employee contributions, but he knew he wanted to do so in the future

There are three main types of employer sponsored retirement accounts:

1. SEP IRA - Employer contributions only (employees can’t contribute)
2. Simple IRA - Employer required to match each contribution on a dollar-for-dollar basis up to 3% of the employee's compensation or 2% non-elective contribution
3. 401k: Most flexible - you can set up a plan however you like (profit sharing, etc.)

Since Jake a) wanted his employees to contribute to the account, and b) wasn’t ready to match their contributions yet, the 401k would be the best option.

“Okay, if you’re not ready to match yet we should go with the 401k. That type of account has the most flexibility, and you’ll also be able to make changes in the future.”

The 401k would give Jake the most flexibility. He could set up his match at any point in the future, and could set it up like a typical match (percentage of the employee’s salary) or could set it up as a profit share.

“I love the idea of a profit share,” Jake said, “then everyone is directly compensated with the success of the company.”

Together we implemented the new 401k plan for his employees, and in addition to providing a great benefit for his team, Jake was able to take advantage of tax incentives too:

1. $500/yr Auto Enrollment Credit (for 3 years)
2. $2,000 Startup Credit
3. $1,000 Contribution Credit per employee

For his first year with the new retirement plan, he had a total of $5,500 in tax credits.?

On top of that, Jake was able to take a business deduction for the amount he contributed to his own 401k that year.

It was a win for everyone:

• Jake saved his business money
• Jake made progress towards his retirement in a tax efficient way
• Jake’s employees received a new benefit

When Jake first set out to implement a retirement plan, it was primarily with his employee’s in mind. Little did he realize all the benefits he would receive as well.

2. Actionable Tip: Know Your Retirement Plan Options

For a business owner, they have several choices when it comes to picking a retirement plan.

1. SEP IRA:?

• Most basic - least expensive
• Employer contributions only (employees can’t contribute)
• No Roth option
• Max contribution up to 25% of employee compensation or $69,000 whichever is lower

1. SIMPLE IRA:?

• Basic - minimal expenses
• Less than 100 employees
• No Roth option
• Employer required to match each contribution on a dollar-for-dollar basis up to 3% of the employee's compensation or 2% non-elective contribution
• Max contribution of $16,000 by employee (+$3,500 catch up if over 50)

1. 401k:?

• More involved - higher expenses - most flexibility
• Can set up a plan however you like - match, profit sharing, etc.
• Can have a Roth option
• Max contribution of $23,000 by employee? (+$7,500 catch up if over 50)
• Max contribution of $69,000 by employee + employer (+$7,500 catch up if over 50)

Understanding the differences between the various retirement plan options is key. Make sure you pick a plan that aligns with your business and its goals.

There are also multiple tax credits and deductions that come into play that should factor into the decision making process.

3. Financial Term: IRA (Individual Retirement Account)

There are multiple types of IRAs: SEPs, SIMPLEs, and standard IRAs.

• SEP IRA: Employer sponsored, employees cannot contribute
• SIMPLE IRA: Employer sponsored, with a required employer match. Employees can contribute up to the annual maximum.
• IRA: Not employer sponsored, essentially a personal retirement account with specific rules about contributions, withdrawals, and taxes.?

Having a SEP or SIMPLE IRA does not preclude you from also having an IRA. Employer sponsored accounts are different from personal accounts. The contribution limits are separate too, so you can max them both out to their respective limits.

Happy Trails,

Ryan

Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.