PROFESSIONAL PLANNING AND AGREEMENTS
There are several excellent retirement plans for Professionals and Small Business Owners. The following are four of the most popular:
- Savings Incentive Match Plan for Employees (SIMPLE) IRA: easy and inexpensive to operate, employees share responsibility for their retirement, lower contribution limits than other plans, employer must contribute and employee may contribute.
- Simplified Employee Pension (SEP) IRA: easy to set up and operate, low administrative costs, flexible annual contributions – good plan if cash flow is an issue, employer must contribute equally for all eligible employees, larger contribution limits – 25% of employee compensation or $53,000 for 2015 and 2016.
- Solo (Individual) 401k: more complicated and expensive, required reporting if there is at least $250,000 in your account – form 5500 annually, more contribution possibilities – if your spouse works as your employee you can contribute as an employer and as an employee which can equal up to 20% of your total earnings, flexible contributions from year-to-year.
- Defined-Benefit Plan: you can contribute a lot of money – more than $100,000 per year, can be combined with other options such as a Solo 401k or SEP IRA to save more than $150,000 per year, great option for smaller (solo) operations but less so for larger businesses, must be offered to employees which can get expensive, costs are high.
Choosing the right plan can have a significant impact on your annual taxable income and ultimately your retirement. Gwynedd can help you navigate and establish the best plan for your practice or business.
There are multiple agreements or legal documents that Professionals and Small Business Owners should maintain. In addition, there are several basic types of insurance that each business should carry.
- Operating Agreement: including a buy/sell clause and how partner compensation may change based on role changes within the organization.
- Business Succession Plan: explains the transfer of ownership and control of a business, either to a family member, non-family member, sale of the business to an outsider, management buy-out, management buy-in or voluntary liquidation.
- Bylaws: legal backbone for how a firm operates, state statutes control how a company is run without it.
- Employee Contracts and Offer Letters: explains employer expectations, vesting, and all other rules. Protects the company and prevents misunderstandings.
- Assignment of Intellectual Property: every person, including founders, should execute an agreement assigning all intellectual property to the company – without legal title to it, the company is worth considerably less.
- Non-Disclosure Agreement: many conversations will need to begin with a signed NDA and having one on file will protect the privacy of your company and your ideas.
- Business Overhead Expense Disability Insurance (BOE): pays the insureds business overhead expenses if he or she becomes disabled, pays a monthly benefit based on actual expenses not anticipated profits, designed for businesses that rely on a small number of people (or one person) to produce revenue.
- Buy-Sell Agreements Funded with Life Insurance: cross-purchase buy-sell, entity buy-sell and wait and see buy-sell. The use of each depends on the number of owners and the objective of the current owners and potential future owners. Allows for seamless funding and transition of ownership.
- Liability Insurance: pays damages for which you are found liable up to the policy limits, includes your legal fees, pays medical bills of any people injured by your business.
- Specialized Liability Insurance: Errors and Omissions (E&O), Employment Practices Liability Insurance (EPLI), Directors and Officers (D&O), Business Theft Insurance.
- Property Insurance: compensates you if the property you use in your business is lost or damaged as the result of fire or theft etc. Includes furnishings, inventory raw materials, machinery and computers.
- Workers Compensation Insurance: pays for medical care and a portion of lost wages for an employee injured in the course of employment regardless of fault, all states except Texas require employers to carry it when there are a certain number of employees varying from three to five.
Having the correct legal documents and insurance in place is often overlooked by small businesses and professional practices. The importance of these cannot be overstated. Gwynedd has the resources and the experience to help you orchestrate and create the documents and insurance protection that is most pertinent to your type of business. Although Gwynedd does not offer tax advice, we do have close relationships with highly recognized CPA and Law firms that can assist you.
Contact us to learn how.