One of the ultimate tax shelters of wealth within the family business is in Employee Benefit Planning Strategies. We are experienced and knowledgeable about the various techniques available to maximize the benefits that can be allocated to the family business owner and other selected employees while minimizing the cost.
All qualified retirement plans have some common characteristics: contributions are tax deductible, they grow tax free until they are withdrawn, at which time with proper planning they can be taxed at favorable rates. So while all qualified retirement plans seem similar, with knowledge and experience they can produce vastly different benefits for the owners.
Section 401(k) plans have become the most popular employee retirement plan because employees can be afforded the opportunity to assist in funding their own retirement by contributing to the plan with before-tax dollars. In encourage employees to contribute to these plans, employers often match some part of what the employees contribute to a 401 (k) plan. The more the rank and file employees contribute, the more the higher paid employees, including the owner, can contribute.
Other types of retirement plans can allocate contributions based on age and compensation, thereby allowing a larger proportion of all employer contributions to be allocated to the most highly compensated employees, generally the owner and top management. These age weighted plans and defined benefit retirement plans can also be integrated with Social Security, since, Social Security will be providing a higher percentage of the retirement income for rank and file employees than for highly compensated employees.
We also use Employee Stock Ownership Plans as a strategy to fund the purchase of an owner's stock on an extremely tax favored basis, because the purchase can be funded with tax deductions. ESOPs are unique because they are the only retirement plans that can borrow funds and those borrowed funds can be used to buy an owner's stock, with the repayment of both the interest AND principal payments being deductible. A most unique feature of ESOPs is that the money paid to the owner for his stock can be used on a tax deferred basis to purchase qualified replacement stocks and bonds of US companies, including family owned companies to help the owners children start or operate a business.
In addition to retirement plans, there are many other forms of employee benefits available in our business strategy portfolio including, stock options, phantom stock, and deferred compensation plans. Of course traditional fringe benefits such as medical reimbursement plans, cafeteria plans, and life and disability insurance plans are meaningful ways to reward the owner and employees that you want to retain with your company. We would welcome the opportunity to discuss any of these employee benefit strategies with you.