Pre-Tax Benefits For Small Business
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Transcript of Pre-Tax Benefits For Small Business
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Pre-Tax Benefitsfor small businesses
Rep Name
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Why Start a Retirement Program?
RETIREMENT
TAX- SAVINGS
CANNOT PREDICT FUTURE, ONLY PREPARE
ATTRACT HIGHER QUALITY EMPLOYEES
RETAIN CURRENT EMPLOYEES
2Revised 1/27/2011
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Retirement – a “three-legged” stool
Read the following excerpt from the Social Security Administration’s website:
“Social Security was never meant to be the sole source of income in retirement.”
A comfortable retirement is based on a “three-legged” stool of Social Security, company-sponsored retirement plans and personal savings.
3Revised 1/26/2011
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Pre-Tax Growth vs Post-Tax Growth
Number of Years that Money is Invested
Saving $500 per month PRE-TAX*
Saving $500 per month POST-TAX*
10 Years $103,276 $89,993
20 Years $382,848 $281,473
30 Years $1,139,663 $689,419
*Assuming 25% tax rate, 10% rate of return, compounded only monthly 4Revised 1/26/2011
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Your Tomorrow Starts Today
Investing early pays off due to compounding interest What is compounding interest?
The process of reinvesting interest to earn additional interest
The more frequent the compounding, the more you earn
The example below shows the difference a head start can make
10 Years 20 Years 29 Years 30 Years
$156,779
$518,801
$1,236,816
$1,354,757
5Revised 1/26/2011
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Revised 1/26/20116
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7Revised 1/26/2011
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Revised 1/26/20118
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Attract Top Employees
Studies show that without benefits, outside of acquaintance or luck, a business owner cannot attract the best quality EMPLOYEES
Research shows small businesses need retirement benefits*While some research shows that small business retirement plans are too expensive for their potential customers, a new survey underscores the fact that employers might want to reconsider that notion.
By Editorial Staff While some research shows that owners think small business retirement plans are too expensive, a new survey underscores the fact that employers might want to reconsider that notion.
Fidelity finds that 49% of workers with a retirement plan say the would not take a job with a company that doesn't offer one. 68% percent of employees said that a retirement plan is critical or very important. Just 36% of employers said it was critical or very important to their staff recruitment and retention efforts.
*© 2007 Employee Benefit News and SourceMedia, Inc. 9Revised 1/26/2011
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Retain Current Employees
If you’re not offering a retirement plan to your employees, don’t be surprised to lose them to a competitor that does!
Misconceptions about 401(k)s could cost Small Business OwnersBy Lynn Gresham
Forty percent of workers in small companies say they would leave their job for one that provided a 401(k) plan, according to a survey conducted by Harris Interactive and sponsored by ShareBuilder 401(k), a subsidiary of ING Direct. . . .
10Revised 1/26/2011
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How Do You Get Money In?
2. Company Match
3. Profit Sharing
1. Salary Deferrals
11Revised 1/26/2011
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How Can You Maximize Your 401(k)?
12Revised 1/26/2011
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Your 401(k) plan, easy as 1-2-3
3 Simple decisions to start your plan
today
Eligibility
Money Manager
Optional Match/Vesting
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Revised 1/26/2011
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Possible EmployerMatching/Vesting Contributions
Matching Options
Employer Matching
Contribution
Not to exceed this percentage
of salary
Employer’s maximum Matching
Percentage
1
100% of first 3%
50% of next 2%
5% 4%
2 0% 0% 0%
3 25% 4% 1%
4 50% 4% 2%
5 50% 6% 3%
6 100% 3% 3%
Years of Vesting
from Date of Hire Vesting Percentage
Option 1 Option 2 Option 3
1 100% 0% 0%
2 100% 0% 20%
3 100% 100% 40%
4 100% 100% 60%
5 100% 100% 80%
6 100% 100% 100%
14Revised 1/26/2011
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IRS/DOL
Money Manager
Participants
Employer
Payroll Bank
Record Keeper
Non-Paychex 401(k) Paradigm
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The Paychex Advantage:A Seamless Flow of Contributions
Client Paychex
InvestmentProvider
Power of Paychex Integrated 401(k)
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What Paychex Does For You
Required Legal Documents Adoption Agreement Plan document Summary Plan Description
Preparation of Form 5500 Preparation of Forms 1099-R and 945 Quarterly IRS nondiscrimination testing Quarterly management reports Quarterly participant statements Daily valuation of account balances Account access via participant website and automated phone system Toll-free phone support Loan modeling and administration Roth option Discretionary profit sharing plan Deferral calculations for pre-tax and Roth Electronic recordkeeping and fund transfer each pay period Payroll integration of employee and employer contributions and census data Enrollment meeting and enrollment kits Automatic enrollment 17
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Money Manager Options
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Small BusinessFlexible Spending Accounts
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What is a Flexible Spending Account?(FSA)
It’s part of the IRS tax code: Section 125 Allows employees to take certain out-of-
pocket expenses on a pre-tax, rather than a post-tax basis: Medical Dental Vision Over-the-counter items
• With a Dr’s Prescription
Dependent Care
20Revised 1/26/2011
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Benefits of an FSA
Employee: Federal Income Tax
Savings Tax savings on FICA State Tax Savings
Employer:
Savings on FICA tax
Workers’ Comp Savings (CA only)
APPROX. 12% SAVINGS ON PAYROLL TAXES
APPROX. 25% - 45% SAVINGS ON EXPECTED GOODS AND SERVICES
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FSA has 3 “buckets”
Plan Features
1) Insurance premiums
3) Out-of-pocket medical, dental, vision, and over-the-
counter expenses
2) Dependent Care expenses
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What Paychex Does For You
Required legal documents and plan changes Regular non-discrimination testing Enrollment meeting and enrollment materials Payroll integration (payroll clients only) Participant website and toll-free support Employer and employee status reports FSA Debit card Weekly claim processing Direct deposit of reimbursements Discretionary employer contributions allowable
through employer funded FSA
23Revised 1/26/2011