To demonstrate the dramatic difference in allowable contribution levels, consider this hypothetical example:
A 50-year-old business owner with $195,000 in income, who plans to retire at age 62, would be allowed to contribute a maximum of $176,166 to a fully insured plan funded with a fixed annuity.
· In a profit-sharing plan with a 401(k) for the same business owner, the maximum contribution amount would be just $54,500, thereby reducing the annual retirement savings opportunity by $121,666.
· The retirement savings gap can be even more dramatic if the fully insured plan is funded with both a fixed annuity and the maximum life insurance death benefit.
“Many entrepreneurs with profitable businesses have higher incomes and assets than traditional wage earners,” Powell observed. “But this doesn’t always translate into significant retirement savings. After working hard to build a successful business, a fully insured plan can allow the business to build an equally successful retirement for its owner.”
With all the advantages of a fully insured plan—highest allowable contribution limits and tax deductibility, retirement benefits guaranteed for life, generally less expensive to maintain than other types of plans—it’s not necessarily the right solution for everyone. Powell stressed that business owners should take care to work with advisors who are well-versed in the architecture of fully insured plans as they consider the following:
Fully insured plans must be funded by fixed annuities or a combination of life insurance and fixed annuities;
· There’s no investment diversification or flexibility;
· The business owner’s funding commitment is neither flexible nor discretionary;
· The fixed annuity funding vehicle does not permit riders or loans; and
· The business must have a history of steady or growing earnings.
In addition to being a leading provider of the two funding vehicles—fixed annuities and life insurance—of fully insured plans, Guardian is one of the few insurance companies positioned to handle the specialized administration needed to implement and maintain them. Guardian’s service offering to business owners includes:
· IRS-approved plan documents
· Simplified installation
· Yearly level-premium administration
· Plan administration, including annual plan review and compliance testing
· Annual government filing assistance
According to Powell, this understanding of the issues small businesses face is simply part of the company’s legacy. “Guardian’s very first policy was sold to a successful cigar merchant on July 17, 1860,” she noted. “Ever since then, we’ve made business owners our strategic priority.”
Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
A mutual insurer founded in 1860, The Guardian Life Insurance Company of America (Guardian) and its subsidiaries are committed to protecting individuals, business owners and their employees with life, long term care insurance, disability income, group medical and dental insurance products, and offer 401(k), annuities and other financial products. Guardian operates one of the largest dental networks in the United States, and protects more than six million employees and their families at 120,000 companies. The company has more than 5,400 employees in the United States and a network of over 3,000 financial representatives in more than 80 agencies nationwide.
SOURCE:The Guardian Life Insurance Company of America