Qualified Plans: A Solution that makes dollars and sense
January is Financial Wellness Month. If you’re a business owner, there’s no better time to review your finances. One of the smartest tools you can use to address your financial goals is a qualified retirement plan. Few strategies offer both the benefit of reducing your current taxable income and, at the same time, building long-term, tax-advantaged wealth. Here’s what you need to know to about qualified plans to get started on your own.
What is a qualified retirement plan?
A qualified plan is a retirement plan that meets specific IRS requirements and allows contributions to receive favorable tax treatment. Common examples of qualified plans include 401(k) plans, Profit Sharing Plans, Defined Benefit Pension Plans, and Cash Balance Plans. Each plan offers unique features, but they all provide benefits to your business.
Why Qualified Plans Make Financial Sense for You
Did you know 85% of small business owners know they should be saving more for their retirement, but only 34% of small employers currently offer a retirement savings plan.1
This gap proves that offering a retirement plan as a small business is a differentiator because not many companies are doing it. It’s a great opportunity to support your employees and prepare for retirement yourself.
Tax Advantages
Money you put into a retirement plan for your employees (often called a match) is usually tax-deductible. This means that you’re able to reduce your taxable income while helping you and your employees save for retirement. The money in the plan can be invested in options such as annuities and life insurance and may grow without being taxed. Over time, that tax-deferred growth can really add up.
Higher Contribution Limits for Bigger Savings
Compared to IRAs, qualified retirement plans let you give higher contributions each year. This can be a big advantage if you have higher incomes and want to lower your taxes and save more for retirement. These plans can be set up to allow a larger share to go to you as the business owner, while still following IRS rules.
Stronger Business Value
Offering a retirement plan can make your business stand out when hiring and keeping employees. For small and growing companies, the right plan helps support your team’s financial well-being while also helping your business grow and stay strong over time.
Which qualified plan is best for your business?
- Solo 401(k): A good choice if you’re a business owner with no employees. It offers high contribution limits without a lot of complexity.
- Profit Sharing: Flexible and customizable. This option works well if you have employees and want the ability to change contributions from year to year.
- Defined Benefit Pension Plans: Designed for high-income business owners, this lets you maximize tax deductions and build retirement savings quickly.
- Cash Balance Plan: A hybrid option that combines high contribution limits with flexibility. It’s often a strong choice if you want to save aggressively for retirement.
Start Now – Your Future Deserves Priority
Building a strong retirement strategy starts with understanding your goals, reviewing your cash flow, and understanding your potential tax-saving options. This Financial Wellness Month, take a moment to invest in your future.
A National Life agent can help you explore which plan is best for your business and retirement goals.
Frequently Asked Questions
What is a qualified retirement plan and why should I consider one?
A qualified retirement plan is a tax-advantaged savings plan that a business sets up to help owners and employees prepare for retirement. These plans can lower your taxable income today while helping your retirement savings grow over time. In short, you can save for the future and reduce your tax bill at the same time.
How can a qualified plan help me save on taxes?
Contributions to qualified plans are usually tax-deductible, which means they can lower your taxable income. Plus, the money in the plan grows tax-deferred, so you don’t pay taxes on the growth until you withdraw funds in retirement.
Can I establish a qualified plan if I own a business but don’t have any employees?
Yes. If you are self-employed and don’t have any employees, you can benefit from a qualified retirement plan. In fact, the plan can be funded just for you. If you’re the only person in your business, a Solo 401(k) could be a great option because it allows for high contributions.
How do I know which plan is right for my business?
The best plan depends on your goals, income level, and whether you have employees. Financial professionals like the ones at National Life Group, can help you choose the plan that fits with your business and retirement objectives.
James Baumann, CLU, ChFC, RICP
James joined the Advanced Sales Team in 2021 and has been with National Life Group for 10 years. He earned the Chartered Financial Consultant (ChFC), Chartered Life Underwriter (CLU), and Retirement Income Certified Professional (RICP) designations from the American College of Financial Services. He also a holds FINRA Series 6 registration and is a registered representative of Equity Services, Inc. (Member FINRA/SIPC). James focuses on the small business market specifically with qualified retirement plans and non-qualified employee benefits.