Retirement Plan Options

[shane23]

I am a single owner LLC with a couple of employees. A few years ago I set up a 401k plan for the company. I contribute to the plan myself. Myself and all my employees pretty much contribute the max allowed for the year.

2006 was a great year for the company and I want to defer more of the money for retirement. I already contribute the max to the 401k. As I have read I don't see any option where I can defer money without also adding money for the employees (now before you say give money to employees too - my business model is such that employees are paid very well already so it's not acceptable to do this)....

I only see a SEP-IRA (but because some of the employees have been around for 3+ years, I would have to contribute to them as well).

My accountant says that some company owners work with a retirement specialist to set up defered compensation plans or equivalent to do this (where they can defer compensation without contributing to employee plans), but I can't see any examples on the web. Does anyone have any advice to what I'm looking for?

Thanks,
Alanb

There are no retirement plans that allows discrimination.

As to the deferred compensation plan you are referring to, it is a non qualified plan where you can discriminate, however, your LLC doesn't get a deduction for the deferral until actual paid so that does nothing for your current tax situation.

[shane23]

Thank you for the response. So what do most other small business owners do (like the ones in my situation where they are a single owner with employees)? I assume there are other owners that are in the same situation - do they just contribute to the 401k like the employees and that's it? I suppose in different business models they can do profit sharing for everyone by percentage??? comments?

[Goldendults]

The IRS organized retirement plans in a way to prevent exactly what you are proposing. The only option you really have is to fire everyone... outsource your entire business except what you do.

There are ways to setup plans that greatly favor you using safor harbor contributions, classification methods, etc. However, there will be amounts that you will have to contribute to employees that meet eligibility requirements. The analysis you need to do here is:

1. How much do you want to save for yourself.
2. Given the answer to #1 select your plan.
3. Determine the contributions necessary for your employees.
4. Compare tax savings to the contributions.
5. Make decision.