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president's letter
Planning for the future, part I
Sam Bruce
NTCA President
We all need to have a financial plan for our futures. Personal financial plans can be done in a number of ways to utilize the many resources available to plan for retirement, protect our families, and create passive income. Business owners have an extra level of planning that must be done to protect the business and ensure that it can withstand life events and thrive into the future.
The last thing anyone should rely on is for the government to take care of them. If Social Security and government health insurance are your retirement plan, I urge you to take control of your future and use government programs as only a portion.
If you have the ability to contribute to a 401(k) plan, then make that commitment, as these plans are great starts. Some companies will match your contributions; this opportunity should not be passed up since it adds extra dollars to your retirement at no cost to you. The money that you contribute to a 401(k) is not subject to some income taxes so once you begin to contribute, it has little effect on your after-tax income.
Individual Retirement Accounts (IRAs) are another option if your company doesn’t offer 401(k) plans, or to make additional investments. IRAs are similar to 401(k) plans, however they are set up personally and are invested with your pre-tax or after-tax income. A Roth IRA is invested with after-tax income; the benefit is all of the gains made from the investment are tax-free, allowing you to keep all of your money from your gains and not pay taxes upon withdrawal.
Life insurances can help you plan for the unknown and protect the surviving family from the burden of cost-of-living or other expenses. Term Life insurance policies can be very affordable to achieve the protection that you desire. Keep in mind the policy expires once you reach the age specified in the term. Whole Life insurance is more expensive since it gains value as you pay into it. Unlike Term Life insurance, a Whole Life policy will never terminate after a given amount of time and the value will grow to be more than the premiums paid. If looking at life insurances as part of your planning, it is a good idea to have a balance of both types of policies.
As a business owner, the benefit from establishing a company 401(k) plan gives you a higher ability to attract and retain employees since it creates an avenue for them to plan for retirement, especially if you have the ability to match their contributions. There are also potential payroll tax savings on the contributions that employees make. If you are a merit shop contractor that performs work on prevailing wage projects, there are also plans that qualify the fringe benefit portion of the prevailing wage to be paid into an employee’s 401(k). This allows your employees to save for their retirement at a larger rate and also can save the business from payroll taxes.
Profit Sharing plans are another way for companies to contribute to employee 401(k) plans. The company has the ability to decide each year what that contribution can be, based on the company’s profitability.
Explore these financial options for yourself and your company. And stay tuned for next month’s installment where we’ll look at financial protections for your business, including succession planning and Buy-Sell Agreements.
Best to your success, Sam Bruce President, NTCA SamB@vctile.com