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Client Profile

Several of Karen’s most experienced employees took jobs with competing companies that offer better benefits. Karen thinks a retirement plan could help her retain her staff, but she’s concerned about the costs.

Survey after survey has shown that retirement benefits are highly valued by employees. Fortunately for Karen, there are many different plans to choose from. But before she decides on one, Karen has to first take into account her company’s budget and overall financial situation.

For example, if Karen’s business doesn’t always generate a profit, or if profits are unpredictable, then a pension plan requiring Karen to make an annual contribution would not be a good choice. A 401(k) or profit sharing plan, or a combination of the two, might be a better arrangement under the circumstances.

With a 401(k) plan, eligible employees can choose to defer a portion of their salaries to the plan. These contributions generally are made on a pretax basis, although a 401(k) plan also can offer an after-tax Roth contribution option. An employer may — but is not required to — make matching contributions. With a profit sharing plan, contributions can be made at the employer’s discretion. So, if profits are low one year, the company could make a small or no contribution to the plan.

It might be worthwhile for Karen to find out more about certain retirement plans that are aimed at small employers. These plans generally involve minimal administration and have low maintenance costs. However, many such plans require employer contributions.

Establishing a retirement plan provides an excellent opportunity for both employers and employees to set aside money for the future in a way that may provide tax advantages.

Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.

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