BACKGROUND:
A veterinarian in upstate New York has been running a successful practice for 10 years.  The company is a C-corporation, co-owned by a husband and wife in their 40s who are on W-2 salary, as are five additional employees in their late 20s. The business had an existing safe harbor 401(k) plan, administered by a payroll provider, that provided a contribution of 3% of pay to its employees.

The owners came to Intac FuturePlan in April 2021 for help in boosting their retirement savings more quickly and reducing their tax liability. They had significant income, a large tax bill that year, and no retirement savings.

CHALLENGE:
The owners wanted to save more aggressively for retirement and defer income to do so, but the existing plan design did not accommodate their needs.

In addition, because their 401(k) plan was with a payroll provider, they lacked access to a) more innovative options and b) pension consultants to work closely and proactively with them. The former plan administrator never reviewed options available to solve their challenges.

SOLUTION:
Using a more sophisticated design, our consultants added a new comparability profit sharing component to their existing 401(k) plan. This is a formula that projects out an employee’s current profit sharing contribution to a future annual benefit at a pre-determined retirement age.

The prior plan administrator had no awareness of this untapped opportunity to minimize taxes and maximize retirement savings.

RESULTS:

• The new comparability profit sharing component provided the business owners with more than 90% of the total contribution of over $120,000.  
• The business owners saved over $50,000 in taxes while making a significant contribution to their own retirement savings.
• The new comparability profit sharing component provided an extra benefit to staff, helping to retain employees.
• Employees (whose employer contribution had previously been at the minimum 3%) received another 2% of pay contribution into their accounts, helping them to save more money, more quickly.
• Additionally, the employer mitigated some of the corporation’s bonus requirements by deferring bonuses into the plan, which put even more money in employees’ accounts.

 Intac FuturePlan offers small businesses personal guidance and support with plan monitoring, report filing, and customized plan design. This ensures our clients’ needs are well served and their business and savings goals are met. Contact us for a review of your existing qualified retirement plan or to set up a new plan for business owners and employees.