If your business is looking to offer employees a comprehensive retirement, pension, or healthcare plan, understanding what a plan sponsor is and how they work is the first step.

Retirement Plan Sponsor Defined

Put simply, a plan sponsor is any company or organization that establishes and maintains a retirement, pension, or healthcare plan for its employees. Essentially, if your organization offers one or more retirement or medical coverage plans to its employees as part of its employee benefits package, it is a plan sponsor. In particular, a company offering a retirement plan is called a “retirement plan sponsor.”

What Does a Plan Sponsor Do?

As a retirement plan sponsor, the company has various responsibilities to follow so it can offer its workforce an actionable way to save money for retirement.

Generally, the main responsibility is establishing the plan, which must adhere to Internal Revenue Service requirements. While a plan sponsor may hire administrators and financial advisors to help create and manage the plan, it’s the employer’s role as the sponsor to ensure ongoing compliance.

Additionally, plan sponsors must stay updated on retirement or healthcare plan industry trends and changes. For example, employee contribution limits for retirement plans can change annually, meaning sponsors must amend the plan as needed and keep plan participants in the loop.

Most companies that sponsor retirement plans work with third-party advisors to help them create, distribute, and maintain their policies. This allows them to establish clear, comprehensive, and compliant retirement policies that employees can understand — though it’s crucial to note that the plan sponsor is still ultimately responsible for its compliance.

Steps for Distributing a Company Retirement Plan

The steps to create a retirement plan as a plan sponsor include:

1. Consider Goals and Budget

As a team, you’ll want to figure out your goals for creating the company retirement plan and how the company can afford to establish it. For example, do you want to build a plan that helps you attract top talent, or are you more concerned about retaining current employees? Additionally, how much can your business reasonably afford to contribute to the plan? These considerations will help you assess the available options to choose one that suits your employees and aligns with your budget.

It’s also important to note that different retirement plans exist for different organization types. For instance, if you employ less than 100 workers or your business is designated as a nonprofit, your company will qualify for a particular set of plans. These company-specific characteristics are important to remember as you start the plan sponsor process.

2. Select the Retirement Plan

There are multiple retirement plan options to choose from for your workforce. As a result, you should compare all your options — including qualified and nonqualified plans — and how they might fit your employees, plus your goals and budget as a company. These are a few examples of retirement plans to consider:

• Simplified Employee Pension Individual Retirement Account (SEP-IRA): The SEP-IRA is ideal for small businesses. Each employee receives their individual retirement account. The employer adopts an SEP agreement and then directly contributes a certain percentage of every employee’s compensation to the employee’s retirement accounts. The SEP-IRA comes with higher contribution limits and is tax-deductible for employers.
• 401(k) plan: This employer-sponsored plan allows employees to allocate a portion of their paychecks toward retirement before taxes. The amount of money workers can contribute is limited, and employers may offer matching contributions. Regarding taxes, contributions reduce taxable income, and employees don’t have to pay taxes on them until retirement.
• 403(b) plan: Similar to a 401(k), the 403(b) plan allows employees to make pre-tax contributions through payroll deductions, and employers can match contributions. However, 403(b) plans are solely for nonprofit organizations, some government entities, and schools.

If your company employs less than 100 employees, you might be interested in offering a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan. This option is a great alternative to sponsoring a traditional retirement plan and as a startup option for smaller companies. This plan involves employee contributions up to a specific amount, and the employer must match a certain percentage. It also provides tax-deferred growth on contributions.

Because not every plan will work for every company, take your time to research each option and determine how certain plans may benefit your team more than others. Additionally, contribution limitations for plans can change annually, which will likely be a key consideration in your selection process.

3. Research Plan Providers

Next, select a financial institution or administrator to manage the plan for your company. Administering any retirement plan is a highly complex and time-consuming process — and it’s subject to numerous stringent compliance regulations.

While some employers attempt to distribute retirement plans on their own, enlisting the help of an experienced service provider can be invaluable. It’s the employer’s fiduciary responsibility to act in the best interests of the beneficiaries — or the employees who buy into the retirement plan — and working with a professional financial team can help you maintain that responsibility.

Once you partner with a retirement plan service provider, you can establish investment options, draft plan documents, set up recordkeeping processes, and more. Together, you’ll create a detailed and compliant policy document to launch your company’s retirement plan.

4. Communicate With Employees

As the plan sponsor, you want to welcome employees to the plan and make onboarding as streamlined as possible. This step involves developing employee materials that cover all the information they need to know about the retirement plan. For example, you should detail how contributions work, which investment options are available, and the plan’s benefits. Provide support as employees learn about the plan to answer questions and get everyone on the same page.

5. Implement the Plan

Finally, with the help of your professional retirement services partner, it’s time to launch your company’s new retirement plan. All eligible employees can now enroll in the plan and begin making contributions as applicable. This process should be as smooth as possible, so try to ensure enrollment systems work properly for your employees’ sake and recordkeeping purposes.

Frequently Asked Questions

Have more questions about plan sponsors? Explore the following FAQs and their answers to learn more:

What Is the Fiduciary Responsibility of a Retirement Plan Sponsor?

Under the Employee Retirement Income Security Act, retirement plan sponsors have a fiduciary responsibility to act in the best interests of plan participants. As the plan sponsor, this responsibility means your company must always prioritize the interests of your employees who choose to enroll in the retirement plan. More specifically, it’s a legal obligation to avoid conflicts of interest, select diverse and suitable investments, maintain transparency with participants about the plan, and more.

Who Is the Plan Sponsor of a 401(k)?

A plan sponsor of any retirement plan — 401(k), 403(b), or otherwise — is an employer or company that maintains that plan for its employees. In some cases, a plan sponsor can be a group of representatives or a key executive overseeing the plan. If you’re an employee wondering who your plan sponsor is, it’s likely your employer.

Learn More About Our Retirement Plan Sponsor Services

The team of financial professionals at Fort Pitt Capital Group knows how complicated it can be to offer a beneficial retirement plan for your employees. Between choosing the right retirement plan type and creating a compliant policy, it can take months for companies to get started.

That’s why we’re here to take the weight off your shoulders with our retirement plan administration and compliance services. Our complete approach includes employee data collection, recordkeeping, plan document maintenance, government reporting, and so much more. As a result, you have a reliable partner on your side to keep you compliant, free up valuable time, and ensure you maintain your fiduciary responsibility.

Ready to create a retirement plan that works for your valued employees? Contact us today to get in touch with our experienced team!

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The guide will teach you when you need spousal consent when dealing with individual retirement accounts (IRAs). We’ll consider the applicable laws in states that require spousal consent for IRA transactions.

What Is Spousal Consent?

Spousal consent is the permission one spouse gives the other to perform an act. In this context, it is the agreement between spouses regarding an action that affects a retirement account. Spousal consent may relate to activities like withdrawals, distributions, or the designation of beneficiaries. Generally, a spouse can consent by completing and signing an administrative form, which a licensed notary must notarize to confirm its authenticity. Alternatively, a plan representative may witness the signing.

Some retirement plans require spousal consent to validate changes or actions. This rule generally applies to qualified retirement plans or defined benefit plans. For example, if you want to change a designated beneficiary on your 401(k) account to someone other than the spouse, your spouse must consent. However, the rules are different when it comes to IRAs.

When Do You Require Spousal Consent?

Certain retirement plans require consent when taking distributions or changing beneficiary designations. Classic examples include defined benefits, money purchase pensions, and target benefit plans. Even so, there are exceptions regarding 401(k) retirement accounts. IRAs are also usually excluded.

For example, a federal court decision from West Virginia assessed the two spousal rules in 2022. In that case, Mr. Gifford was an optician at Walmart and participated in the Walmart 401(k) plan. He was married to Sara Gifford, the sole beneficiary of the plan.

Mr. Gifford requested and received a distribution of the funds in the 401(k) account and deposited it into an IRA. Then, he named his daughter, Emma, as 90% beneficiary. The remaining 10% was in Sara’s name. Mr. Gifford did not obtain spousal consent when withdrawing the money or designating Emma as the IRA’s beneficiary. Sara filed a lawsuit claiming the 401(k) lump sum distribution was invalid. She argued that the Employee Retirement Income Security Act of 1974 (ERISA) required her to consent to the payout.

The court ruled against Sara. The rationale was that the consent rule applies if the 401(k) plan offers a lifetime annuity as an optional form of payment. Additionally, the account holder must select the lifetime annuity payment option. In this case, the Walmart plan did not offer a lifetime annuity option. Therefore, Mr. Gifford did not need Sara’s consent.

Is Spousal Consent Required for IRA Distribution?

Generally, a spouse does not need consent when taking an IRA distribution because IRAs are not subject to the spousal consent rules under ERISA and the Retirement Equity Act (REA). These laws apply to qualified retirement accounts, one major difference between IRAs and qualified plans.

If a married qualified plan account holder wants to take any distribution, they must have it paid as a qualified joint and survivor annuity (QJSA). If they wish to be paid in any other form, such as a lump sum distribution, their spouse must consent. QJSAs provide benefits to the surviving spouse following the account holder’s death. It’s important to note that this spousal consent requirement does not apply to many 401(k) plans.

Is Spousal Consent Required for IRA Beneficiary Designation?

Generally, you do not need spousal consent when changing your IRA’s beneficiary designation. However, you may require spousal consent if you live in a community property state. Community property rules vary from state to state but generally treat assets and debts acquired during the marriage as jointly owned. This includes funds in your IRA that accumulated since you married, assuming you lived in a community property state all those years.

If the IRA owner dies or divorces, the spouse could be entitled to a portion of the funds unless they waive that right. Since the nonparticipating spouse has an interest in the funds, the IRA owner must obtain spousal consent when designating a beneficiary other than the spouse. Naming someone in your will or trust as the beneficiary of your IRA funds generally does not change the rules — you still need spousal consent, subject to legal exceptions.

What States Require Spousal Consent for IRA Beneficiary Designation?

Generally, you need spousal consent for an IRA designation if you reside in one of the following community property states:

1. Arizona
2. California
3. Louisiana
4. Idaho
5. New Mexico
6. Nevada
7. Texas
8. Wisconsin
9. Washington

You may still obtain spousal consent even if you do not reside in a community property state, but it is optional. This approach can be helpful if you have previously lived in a community property state or move to one in the future. Considering that the law may apply differently depending on the circumstances, it’s best to consult an attorney for tailored advice.

Is Spousal Consent Required for 401K Rollover to IRA?

Generally, you can rollover funds in a 401k to an IRA without spousal consent. The regular distribution rules apply in most instances. Married 401(k) account holders who do not want to leave their entire amount to their spouse can elect to receive a lump sum distribution once they become eligible. Then, they can roll those funds into an IRA and designate anyone they prefer as their beneficiary. In most cases, the 401(k) distribution and IRA beneficiary designation will not require spousal consent.

Frequently Asked Questions

Below are answers to some commonly asked questions:

What Is the Spousal Consent Requirement?

Most retirement accounts require spouses to obtain consent from the other when taking distributions or changing beneficiary designations. This requirement applies depending on the type of plan or the couple’s residence. For example, an IRA owner does not generally require spousal consent when making withdrawals. However, they may need spousal consent if they live in a community property state and want to elect or change beneficiary designations.

Does a Surviving Spouse Have Rights to an IRA?

A surviving spouse does not have automatic rights to a deceased spouse’s IRA funds unless they are named beneficiaries. If the account holder designates another person as the beneficiary, that person may claim the money. However, if the couple resides in a community property state, the surviving spouse may claim the IRA. According to the community property rules, couples own assets equally.

Do the Spousal Requirement Rules Apply to Unmarried Couples?

The spousal consent rules typically apply only to married couples — not domestic partnerships or similar relationships that state laws do not recognize as marriages. Unmarried couples do not enjoy the same benefits and protections as spouses. The rule applies to same- and opposite-sex couples.

Do You Need Further Advice? Contact Fort Pitt Capital Group

Fort Pitt Capital Group is a team of financial advisors with experience in financial planning, wealth management, and investment analysis. We have provided practical solutions to clients for almost 30 years. Our team dedicates time and attention to understanding each situation so we can offer tailored advice. Contact us now to learn more about IRAs, spousal consent requirements, and how we can help you manage your wealth.

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Start Early: The key to supercharging your compounding is time. The earlier you start saving and investing, the more time your money has to grow exponentially. You can see exactly how this math works using our Retirement Savings Calculator.

Let’s create a scenario where a 16-year-old starts saving just over $130 per month from his part-time job and puts it in a Roth IRA, for which there is no age threshold.

Save Consistently: Even small amounts can add up significantly over time. Our 16-year-old continues to do this throughout his entire working life.

Invest Wisely: Look for investment options with a good historical rate of return, like low-cost index funds. These offer diversification and generally track the market, reducing risk.

Tradethatswing.com reports that as of February 2024, the yearly average 30-year return of the S&P 500 is 10.22%. Assuming the dividends are reinvested and adjusted for inflation, the 30-year average stock market return is 7.5%.

Let it Ride: Avoid the temptation to withdraw your money unless absolutely necessary. Reinvest your earnings to keep the compounding cycle going strong. Remember that the market is not always on an upswing. There will be bull and bear markets to endure.

In our pretend scenario, our 16-year-old is consistent with his $130 monthly investment, and he averages 7.5% interest over his 50 years of working. He would have saved just over $80,000 of his income but earned over $900,000 in interest, making him a millionaire by the time he retires. In the pie chart shown, the green represents the total deposits while the red represents the interest. Compounding interest did the lion’s share of the work.

Here’s a Reality Check: Becoming a millionaire solely through consistent saving, compounding interest, and average market returns might take a long time, depending on your starting point and lifestyle. Additionally, one million dollars may not be enough to retire for many people, so while compounding interest is a powerful tool, it’s one piece of the puzzle. Our pretend sixteen-year-old can and should do more as he ages into more professional jobs and higher income.

For many people, hiring a financial advisor is a vital piece of the puzzle to ensure that you do not run out of money before you run out of breath. In a nutshell, a financial advisor acts as your personal financial coach, empowering you to make sound financial decisions and achieve your long-term financial goals.

When to Consider a Financial Advisor:

A financial advisor can be a valuable asset, especially when:

• Complexity Increases: As your financial situation gets more complex, with multiple investments or inheritance planning, a professional’s guidance can be crucial.
• You Need a Personalized Plan: They can tailor a strategy to your risk tolerance, financial goals, and timeline.
• Emotions Cloud Your Judgement: Making investment decisions during market downturns can be stressful. A financial advisor can provide objective advice.
• Wealth Accumulates: For many people, once they start to nearly half a million of investable assets, it becomes wise to talk with a professional. There are many reasons for this, like possible opportunity loss. Opportunity loss, also known as opportunity cost, is the potential benefit you miss out on when you choose one financial decision over another. The more money you have saved, the more potential harm a bad decision can cause.

What does a financial advisor do?

1. Holistic Financial Planning:

• Understanding Your Needs: Advisors analyze your complete financial situation, including income, debts, assets, spending habits, and future goals.
• Creating a Roadmap: They design a customized financial plan that outlines strategies for saving, budgeting, investing, debt management, retirement planning, tax optimization, and other crucial aspects tailored to your individual circumstances.

2. Expertise with Investing:

• Building your Portfolio: Advisors help you pick investments that align with your risk tolerance and financial objectives. They diversify investments to minimize risk and aim for long-term growth potential.
• Ongoing Management: They monitor your investments, rebalancing your portfolio as needed to maintain your desired risk profile and adjust it based on market changes or shifts in your life goals.
• Tax Strategies: They help minimize your tax burden by employing strategies like tax-efficient investments and tax-loss harvesting.

3. Support and Guidance:

• Navigating Complexities: They break down complex financial jargon and concepts into easy-to-understand explanations.
• Objective Advice: Fiduciary advisors offer unbiased recommendations, keeping your best interests at heart and helping you avoid emotionally driven investment mistakes.
• Goal Accountability: They track your progress, reminding you of your long-term goals and keeping you motivated throughout your financial journey.

4. Coordinating Other Advisory Services:

• Estate Planning: Advisors can assist in preparing wills, trusts, and other estate planning strategies to protect your assets and ensure smooth wealth transfer.
• Insurance Planning: They recommend insurance solutions to manage risks related to life, health, or disability.
• Access to Other Professionals: Advisors can connect you with other trusted experts, such as tax professionals or attorneys, for more specific needs.

Remember: There’s no one-size-fits-all approach. Building wealth is a marathon, not a sprint. Starting early, being consistent, and making smart choices will put you on the path to financial freedom and potentially millionaire status.

Fort Pitt Capital Group, LLC is an investment advisor registered with the United States Securities and Exchange Commission (“SEC”).  For a detailed discussion of Fort Pitt and its services and fees, see the firm’s Form ADV Part 1 and 2A on file with the SEC at www.adviserinfo.sec.gov.  Registration with the SEC does not imply any particular level of skill or training.

Investing involves risk. Principal loss is possible.

The S&P 500 is a broad-based index of 500 stocks, which is widely recognized as representative of the equity market in general. The index is unmanaged and may represent a more diversified list of securities than those recommended by Fort Pitt. Fort Pitt may invest in securities outside of those represented in the index. The performance of an index assumes no taxes, transaction costs, management fees or other expenses. Additional information on any index is available upon request.

The post How to Become a Millionaire – Understanding Compounding Interest appeared first on Fort Pitt Capital Group.

The financial advisors at Fort Pitt Capital Group are here to help you budget for the future. This article offers tips you can use to form a saving strategy as you prepare for retirement and your children’s college tuition along with our webinar, ‘Will College Costs Wreck Your Retirement?’

Prioritize Retirement Savings

Retirement should be the first priority on your long-term savings list because it is one almost certain part of your future regardless of your family status. If you have children, there is a chance that college won’t be the best option for them. That means starting your retirement savings before a college fund creates enough of a financial base in your retirement account that you can roll back its budget later and still feel comfortable. 

Start a College Savings Account When Your Child Is Young

Begin saving for college when you have a child, ideally after allowing your retirement fund to take shape. Saving for education early is important so that you can build enough money to position your child for success after graduation. 

Starting early means you’ll have plenty of time to build their fund, and there’s a chance you may not even need it. Your child may earn an academic or athletic scholarship. They may also choose a different career path that doesn’t require a traditional college education. Click here to learn how to handle unused 529 Funds. 

Planning Goals, Expectations, and Options

Planning is important when saving for anything major like college or retirement. A steadfast financial plan starts with understanding your financial needs now and in the future. Calculate how much you’ll need for retirement and college tuition payments, then assess your income to see how much you can afford to set aside. Break your long-term savings goals into yearly, monthly, and even weekly increments, then set aside as much as you can with each paycheck to reach your goals while meeting your immediate financial obligations. Click here to download Fort Pitt’s free personal budget spreadsheet.

Retirement Planning and Options 

Forming a retirement savings plan starts with an assessment of your monthly expenses. Your retirement savings end goal depends on your lifestyle. You’ll need to save enough to meet your current expenses if you want to keep living how you live today. Your retirement fund should reach your current salary multiple times over so that you can continue living comfortably for multiple years. Setting aside about 15% of your income for retirement each year is common.

There are two conventional ways to save for retirement — individual retirement accounts (IRAs) and 401(k)s:

• IRA: An IRA is a personal retirement account offering tax advantages. There are numerous types of IRAs. Traditional IRAs offer the potential for tax-deductible contributions. Roth IRAs yield tax-free distributions. 
• 401(k): A 401(k)is a company-sponsored retirement account. Your employer will offer contributions matching up to a certain percentage. The more you contribute, the more your employer will match. 

College Savings Planning and Options 

A college savings fund should max out as close to each child’s tuition as possible. A four-year degree will cost $100,000-$200,000 in total, depending on the type of school your child attends. Scholarships will reduce the cost of college, but it’s best to assume the least amount of financial aid. You’ll have roughly 18 years to save, so build your budget in a way that allows you to get as close to the full tuition as possible. Saving $500 a month for 18 years will allow the fund to surpass the $100,000 mark. 

There are two common types of accounts for college education — 529 plans and Coverdell Education Savings Accounts:

• 529 plans: A 529 plan allows you to contribute as much as you want up to your balance goal, which is ideal for fast growth. There are no taxes for 529 growth or withdrawal, provided the monies are used for educational purposes, per the rules for your 529 program. There are things you can do to avoid paying penalties on a 529 refund- click here for more details. 
• Coverdell Education Savings Accounts: A Coverdell Education Savings Account is a government account you can use to cover educational expenses without taxes in the first 30 years of your child’s life. There is a maximum contribution of $2,000 annually for these accounts. 

For more details and additional options, check out our article, How to  Save For Your Baby’s Future. 

How Fort Pitt Capital Can Help

Fort Pitt Capital Group helps individuals and families plan for major expenses at every stage of life. Our financial advisors will sit down with you to analyze your financial situation, understand your long-term goals, and develop a savings strategy that gets you there. Some individual financial services you may consider include:

• Wealth management
• Financial advisory
• Portfolio management

Work With Fort Pitt Capital Group

Building a prioritized financial strategy will help you afford college tuition payments and post-retirement expenses comfortably. Fort Pitt Capital Group’s financial services will put you on the right path so that you maintain steady growth. We encourage you to contact us online for more information on our wealth management services. 

The post How to Save for College and Retirement appeared first on Fort Pitt Capital Group.

A typical 65-year-old retired couple can expect to pay $315,000 in medical expenses. Knowing how to plan for medical expenses in retirement is vital because the sum excludes dental care, over-the-counter medicine, and long-term care.

Consider Medical Insurance in Retirement

Many people are unaware of how much health care costs in retirement and that Medicare may not cover all their medical expenses. You can use Medigap coverage to supplement Medicare. In addition, consider long-term care insurance to fund stays in nursing homes. Without coverage, these costs can accumulate quickly.

What Medicare Does and Doesn’t Cover

Medicare is insurance for individuals aged 65 or older, not covering long-term care and only certain health costs. Medicare consists of various parts and supplement plans. Without Part D, you won’t have access to a prescription drug policy and consequently will not have access to your medications.

Parts A and B of Original Medicare plans don’t cover vision and dental care. This gap means you will need to account for out-of-pocket costs. Relying on Parts A and B may require you to budget for premiums and deductibles:

• Medicare Part A: Part A covers hospital stays and procedures with an inpatient hospital deductible of $1,600.
• Medicare Part B: The monthly premium for Part B covers doctor’s visits and outpatient treatments for about $164.90, with an annual deductible of $226 in 2023.

In partnership with Medicare, private medical insurance providers offer Medicare Advantage plans. These plans cover Medicare treatments and additional benefits at a monthly premium. Some may cover costs for hearing, dental, and vision.

Look Beyond Retirement Savings to Pay for Medical Expenses

Medical expenses in retirement account for a considerable portion of your savings. Invest in a long-term care insurance plan to cover nursing or other care to safeguard your earnings for other needs.

Consider building a robust emergency fund to cover unexpected medical costs. An emergency fund is helpful when unforeseen expenses arise. In addition, you can use a Health Savings Account (HSA) to set dedicated money aside until you retire. HSAs are not taxed, and they grow tax-free.

Get Investment Help for Retirement

Fort Pitt Capital Group will assist you with making wise decisions today to secure a better tomorrow. We are transparent, client-oriented investment professionals. Learn more about our services today.

The post How to Plan for Medical Expenses in Retirement appeared first on Fort Pitt Capital Group.

Retirement Strategies for Small Business Owners

Let’s review some small business owner retirement strategies.

How to Retire From a Partnership

Retiring from a partnership as a small business owner can be a complex process, as it involves disentangling yourself from the business and transferring ownership to the remaining partners. The following are a few steps to follow if you are considering retiring from a partnership:

1. Review the partnership agreement: The first step is to review the agreement to understand the terms and conditions of retiring from the partnership. The partnership agreement will provide guidance on the process for withdrawing and the distribution of your share of the business.
2. Notify the other partners: Once you have reviewed the partnership agreement and decided to retire, you should notify the other partners of your intentions. Discuss your retirement plans with the other partners and come to an agreement on the terms of your departure.
3. Valuate the business: The next step is to determine the value of the business, which will determine the value of your share. This valuation process can be complicated, so it is best to work with a professional business appraiser who has experience with small business valuations.
4. Negotiate the terms of your retirement: Once you have a valuation of the business and have discussed your intentions with the other partners, you should negotiate the terms of your retirement. This should include a discussion of the price of your share of the business and any ongoing liabilities you may be responsible for.
5. Prepare the documents: Once you have agreed on the terms of your retirement, prepare the necessary legal documents, including a buyout agreement and any amendments to the partnership agreement.
6. Transfer ownership: The final step is transferring ownership of your business share to the remaining partners. This will involve signing over your ownership rights and receiving payment for your share of the business.

How to Retire From a C Corporation, Sole Proprietorship, or Limited Liability Company

Consider these steps if you are considering retiring from a C Corporation, sole proprietorship, or limited liability company (LLC):

1. Plan ahead: Retirement planning should begin well in advance to allow sufficient time to create a plan and to make any necessary changes to the company’s structure. Consider consulting with an accountant or financial planner to review your options.
2. Determine your retirement date: Once you’ve decided to retire, determine the date that you will be stepping down from your role. This will help you and your financial advisors plan your retirement strategy.
3. Evaluate the company’s finances: Before retiring, review the company’s financial statements and tax records to determine the value of the business and any possible tax implications.
4. Identify a successor: Identify someone who can take over your role in the business. This may be a family member, another shareholder, or someone from outside the company.
5. Create a succession plan: Once you’ve identified a successor, create a plan outlining the steps to transfer ownership and control of the business. Consider working with an attorney with experience in succession planning to ensure the plan is legally sound.
6. Transfer ownership: Once the succession plan is in place, transfer ownership of your shares of the business to the new owner, which may involve selling your shares or gifting them, depending on your individual circumstances.
7. Plan for your retirement: Once you’ve retired, consider your own retirement planning needs., which may include creating a retirement income plan, updating your estate planning documents, and managing your investments.

How to Sell a Small Business to Retire

Selling a small business can be a complex and time-consuming process, but it can be a great way to retire with a comfortable nest egg. Review these steps for selling your small business to retire:

1. Prepare your business for sale: Get your business ready for sale by making sure that it is in good financial shape, organized, and has a solid customer base. Make any necessary improvements or repairs to your physical assets, and ensure your financial records are up-to-date and accurate.
2. Determine your business’s value: You will need to know how much your business is worth before you can put it up for sale. Consult with a business valuation professional, an accountant, or a business broker to help determine the value of your business.
3. Find a buyer: Identify potential buyers by contacting business brokers, online marketplaces, or industry contacts. You can also consider reaching out to employees or family members who may be interested in taking over the business.
4. Negotiate the terms of the sale: Once you have identified a potential buyer, negotiate the terms of the sale. This should include the purchase price, payment terms, and any contingencies, such as a noncompete agreement.
5. Transfer ownership: Once the terms of the sale have been agreed upon, you will need to transfer ownership of the business to the new owner. This may involve transferring ownership of assets and business licenses.
6. Plan for your retirement: You can create a retirement income plan, update your estate planning documents and manage your investments with the sale proceeds.

Retirement FAQs for Small Business Owners

Review these frequently asked questions to learn how to set yourself up for a comfortable retirement:

How Should a Small Business Owner Save for Retirement?

The following are some ways small business owners can save for retirement:

• Individual retirement accounts (IRAs): IRAs for small business owners are a type of retirement account that you can set up on your own. Small business owner IRA options include traditional and Roth IRAs. Traditional IRAs allow you to defer taxes on contributions and pay taxes when you withdraw the money in retirement. Roth IRAs are funded with after-tax dollars, but withdrawals in retirement are tax-free.
• Simplified employee pension (SEP) IRA: A SEP IRA retirement plan lets self-employed individuals and small business owners contribute to retirement plans for themselves and any employees. The contribution limits are higher than for traditional and Roth IRAs.
• Solo 401(k) plan: A Solo 401(k) plan is a retirement plan for self-employed individuals with higher contribution limits than traditional or Roth IRAs. The business owner can contribute both as an employee and employer, making it a popular choice for small business owners.
• Profit-sharing plans: Profit-sharing plans allow employers to contribute a portion of the company’s profits to employees’ retirement accounts.
• Simple IRA: A Simple IRA is a retirement plan for small businesses. Employers can make contributions on behalf of their employees, and employees can make contributions through salary deferrals.

What Is the Best Retirement Plan for a Small Business Owner?

The best retirement plan for you as a small business owner depends on various factors, such as the size and type of the business, the number of employees, and your financial goals.

What Happens When a Small Business Owner Retires?

When a small business owner retires, ownership of the business must be transferred or sold to a new owner. The process of transferring ownership depends on its legal structure.

If the business is a sole proprietorship, you can sell or transfer ownership to a family member, friend, or third-party buyer. Alternatively, the business can be liquidated, and the assets sold off to pay off any remaining debts.

You can sell your share of a partnership-based business or LLC to the remaining partners or to a third-party buyer. The partnership agreements should outline the process for transferring ownership.

If the business is a C or S corporation, you can sell your shares of stock to the remaining shareholders or to a third-party buyer if approved by the board of directors and shareholders.

Do Small Business Owners Get Social Security When They Retire?

Yes, small business owners are eligible for Social Security benefits when they retire. Social Security benefits are available to all workers who have paid into the system through payroll taxes. 

The amount of Social Security benefits a small business owner will receive in retirement depends on their earnings history and the number of years they worked and paid into the Social Security system. To qualify for Social Security retirement benefits, a small business owner must have earned a certain number of credits by working and paying Social Security taxes over the course of their career.

Learn About Fort Pitt Capital Group’s Financial Advisory Services

Fort Pitt Capital Group is a financial advisory firm that offers investment management and wealth planning services to individuals, families, and institutions. Learn more about our services and small business owner retirement plans today.

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When you read about different types of retirement plans, you are sure to run across the terms “nonqualified” and “qualified.” These words have numerous implications on the way that these plans are run and both current and future taxation. As an employee, it is crucial that you understand how your retirement plan’s structure will affect your investments in the future and the differences between qualified vs. nonqualified retirement plans.

What Is a Qualified Retirement Plan?

The Employee Retirement Income Security Act (ERISA) governs qualified plans.

Pros of Qualified Retirement Plans

Employers often favor qualified plans, as they provide beneficial tax breaks to the employer and the individual employees. These benefits include:

• Pre-tax contributions: Contributions to qualified plans are made directly from an employee’s paycheck and are made pre-tax.
• Tax-deferred growth: Earnings accumulate on a tax-deferred basis, meaning that no taxes are paid until you begin to withdraw funds from the account.

Cons of Qualified Retirement Plans

There are also some disadvantages of qualified retirement plans to be aware of, such as:

• Restrictions: There are numerous restrictions and requirements for these plans, such as limited investments, filing requirements, nondiscrimination, and other measures making them somewhat expensive to maintain.
• Taxes and penalties: If distributions are made from the account for a nonqualified expense before the employee reaches a specified age, there are taxes and penalties. Currently, this age limit is 59 and a half.

Examples of Qualified Retirement Plans

Examples of qualified retirement plans include retirement plans, such as:

• Keogh plans
• 401(k) plans
• 403(b) plans
• Pension plans
• Profit-sharing plans
• Simplified employee pension plans (SEPs)

What Are Nonqualified Retirement Plans?

Nonqualified plans are retirement plans offered by employers that ERISA does not govern.

Pros of Nonqualified Retirement Plans

There are a few advantages of nonqualified retirement plans that may appeal to you, such as:

• Designed for executives: Since these plans are exempt from the discriminatory and top-heavy testing in qualified plans, they are often designed for executives whose needs are not entirely met by qualified plans.
• Defer taxation: Nonqualified retirement plans may sometimes allow the employee to defer taxation until retirement when they access the funds in their plan.
• Tax-deferred growth: The amount invested into a nonqualified plan can grow tax-deferred until it is accessed in retirement.

Cons of Nonqualified Retirement Plans

There are also some disadvantages of nonqualified retirement plans that you may want to consider, such as:

• Lack of tax benefits for the employer: While a qualified retirement plan may offer tax advantages to both the employee and the employer, nonqualified retirement plans aren’t deductible for employers.
• Taxable contributions: In some cases, employees may need to pay taxes right away on their contributions to a nonqualified retirement plan.
• Limited eligibility and availability: Nonqualified retirement plans are often available only to certain employees, particularly executives and highly compensated employees.

Examples of Nonqualified Retirement Plans

Unlike qualified retirement plans, a nonqualified retirement plan doesn’t have set features that you are required to include. There are some broad categories of nonqualified agreements, however, such as:

• Bonus deferral plan: This type of nonqualified retirement plan enables employees to delay bonus receipts.
• Excess benefit plan: This type of nonqualified retirement plan provides benefits to employees limited by IRS restrictions regarding retirement plan benefits and contributions. An excess benefit plan is sometimes referred to as a Section 415 nonqualified plan because its limitations come from Section 415 of the IRC.
• Salary reduction arrangement: This type of nonqualified retirement plan lets an employee delay receipt of income.
• Supplemental executive retirement plan (SERP): This type of nonqualified retirement plan is also referred to as a top-hat plan. This plan is intended to benefit a specific group of employees. Typically, this group of employees is management or executives.

Examples of nonqualified plans within these broad categories include:

• Group carve-out plans
• Executive bonus plans
• Deferred compensation plans
• Split-dollar life insurance plans
• Individual retirement accounts (IRAs) with the exception of SEPs

Qualified and Nonqualified Retirement Plan FAQ

Below, we answer some frequently asked questions about which retirement plans are qualified or nonqualified.

1. Is a 401(k) Plan Qualified or Nonqualified?

A 401(k) plan is considered a qualified retirement plan. If your company offers employees a 401(k), you may get a tax break by contributing a percentage on your employees’ behalf.

2. Is a Traditional IRA Qualified or Nonqualified?

Traditional individual retirement accounts (IRAs) are considered nonqualified retirement plans. This is because these plans are not created by employers. The exception to this rule is if you offer your employees a SEP IRA option.

3. Is a Roth IRA Qualified or Nonqualified?

Similar to a traditional IRA, a Roth IRA is a nonqualified retirement plan, as employers do not offer it to employees. For many taxpayers, however, an IRA can offer similar tax benefits to a qualified plan.

4. Are Pensions Considered Qualified or Nonqualified?

Most pension plans are considered qualified retirement plans, including SEP plans and salary reduction simplified employee pension (SARSEP) plans.

Speak With a Financial Advisor

If you are interested in discussing the options for your qualified or nonqualified retirement plan, a financial advisor at Fort Pitt Capital Group can help provide clarity and enable you to make the most beneficial decision based on your own goals and needs. Contact us at Fort Pitt Capital Group to speak with a financial advisor about whether a qualified or nonqualified retirement plan is right for you.

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Your Fort Pitt Capital team wants to ensure you use these Internal Revenue Service changes to your advantage. The following highlight some of the limits that have risen for 2023:

• Maximum contributions for 401(k), 403(b) and 457 increases to $22,500
• Social Security Wage Base increases to $160,200
• Annual additions limit for defined contribution plans increases to $66,000
• Annual compensation limit increases to $330,000

We have the full list of 2023’s retirement contribution limit changes listed below:

Contact a Fort Pitt Capital Group Financial Advisor For More Information

This information is provided for your education and is not intended as authoritative guidance or tax or legal advice. You should consult your financial advisor, attorney, or tax advisor for guidance on your situation.

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This guide covers the factors to consider and how you could benefit from life insurance after you retire.

How Life Insurance Fits In

Life insurance helps a household manage financially after a primary wage earner passes away. If you had life insurance through your employer, you might consider picking up a new plan for your retirement. Or, if you have whole life insurance, you may be debating canceling it.

Consider these questions to decide if you could benefit from life insurance:

Do You Still Earn Outside Income?

Most people have life insurance to replace their wages if they pass away while working. If you can retire without working, you probably don’t need life insurance because there is no income to replace. However, there are other reasons to have life insurance, including:

• Replacing your pension: In many cases, pensions end once the recipient dies. Life insurance may benefit your spouse, especially if they have not retired yet.
• Providing an inheritance: Life insurance guarantees your heirs receive tax-free inheritance money. It also allows you to spend your money without worrying about how much they will receive once you pass away.
• Covering funeral costs: A funeral can be expensive, and a life insurance plan can help your family afford it.

Are You in Debt?

If you are in debt, whether you’re paying your mortgage or signed on with school loans for your relatives, life insurance may be a good idea. That way, your family can pay for your debts.

Also, having debts or loans with a co-signer means the other party will need to pay them back alone. Life insurance can assist them with accomplishing this task.

Is Your Household Self-Sufficient?

Life insurance is helpful if you have kids living at home or with special needs. It can also assist your spouse. However, if your adult children and spouse are self-sufficient, you may choose to continue without life insurance.

Would It Help Your Estate?

Life insurance can go toward your estate taxes and business debt, relieving your family or partners of the responsibility. Or, your business lender may require you to have life insurance to ensure you pay them back.

Life insurance can also cover the tax bills for inherited retirement accounts.

Talk to a Financial Advisor

At Fort Pitt Capital Group, we can assist with making decisions concerning life insurance and retirement. Our financial advisors will help you assess your situation and ensure your family will be taken care of.

View our individual services page today to learn more about how we can assist you.

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You may love your career and find your work fulfilling, but you likely don’t plan on working for the rest of your life. If you hope to retire at some point, you need to have a plan and money set aside. Retirement planning is an active process, something you need to be involved in from day one. Whether you’ve just started your first job or have been in the workforce for some time, it’s never too early or too late to start planning for what comes next.

Consider this your quick-start retirement planning guide to get and keep yourself on track, no matter where you are in your career.

What Is Retirement Planning?

Retirement is what comes after years of working or following a career path. The average person spends about 20 years in retirement according to the U.S. Department of Labor, although there’s some variation. That means the average person should have enough savings to support themselves for about 20 years without working. Another term for retirement is financial independence, meaning you have enough invested or saved to live as you want, without having to work.

A retirement plan is designed to make sure that you have the financial resources available to support yourself and maintain your lifestyle once you leave the workforce. Retirement planning is a multistep process. First, you need to figure out how much you’ll need to save to retire comfortably and maintain your standard of living. Next, you’ll need to consider what you want your life to look like after retirement. From there, you can focus on how to save and invest your money.

Several factors influence your overall approach to retirement planning. Your age is one factor — younger people often save less but have more opportunity for their savings and investments to grow thanks to a longer time horizon. Your risk tolerance is another factor. If you’re nearer to retirement, you might have a lower risk tolerance than a person who is just getting started and has decades to let their investments grow.

The options available to you also influence your overall retirement plan. You might work for a company that sponsors a retirement plan, such as a 401(k). Alternatively, you might be self-employed and need to explore other options. A financial advisor who’s a fiduciary can help you put together a plan to meet your retirement goals and live a comfortable life after you’ve stopped working.

How to Start the Retirement Planning Process

With so many options at your disposal, you’re never too young or too old to begin planning for retirement. The first step of retirement planning should come from within. Take some time to envision your ideal retirement. How old would you like to be when you retire? How much would you like to have saved up? Goal visualization can help to inform your ultimate strategy.

You’ll want to begin saving and investing with some goals in mind. Calculate your income, establish a budget, then either set up automatic transfers into an investment account or plan time to do so manually. Your retirement strategy should also include and prioritize prompt debt elimination.

Many companies offer compensation packages, like 401(k) or 403(b) plans that pay out matching contributions from the employee and employer at the time of retirement. Other viable retirement plan options include mutual funds and exchange-traded funds (ETFs) that spread your investment across a wide range of securities.

Another option worth considering is partnering with a financial advisor. The right advisor can offer numerous financial services that can help individuals retire with confidence.

15-Minute Guide to Retirement Planning

Even if retirement seems far away or too big to think about today, your future self will be grateful for taking the time to map out a plan and get the wheels turning. It only takes 15 minutes or so to get the ball rolling on retirement. Here’s what you can do.

1. Know When to Start Planning for Retirement

The best time to start planning for retirement is right away. Ideally, you’ll start saving and investing for retirement when you get your first job. The earlier you start setting money aside for the future, the more time that money has to grow and build wealth for you. The concept of compound interest means that the longer you invest your money, the bigger it will get. With compound interest, the money your investment earns gets added to the initial amount, increasing the amount of interest the investment earns.

For example, if you invest $5,000 at age 20 and let it sit for 45 years with a 5% interest rate, you’ll have $44,925.04 if you retire at age 65 — even if you don’t add to the initial $5,000 investment. If you wait until age 35 to invest $5,000 and let it sit for 30 years while earning a 5% rate of return, you’ll have just $21,609.71.

While it’s ideal to start early when it comes to making a retirement plan, it’s also never too late to get started. If you’re in your 30s, 40s, or 50s, you can still begin making a plan. At this stage in life, you might have more to invest than you did in your 20s, which can help make up for some lost time.

2. Know How to Set Your Retirement Goals

Once you’ve committed to saving for retirement, the next thing to do is consider how much you’ll need to save by the time you hit retirement age. Having a somewhat concrete number to work toward can help you see if you’re on track as the years go on.

There are a few things to consider when setting a goal for retirement:

• Your age: How old you are today influences how long you have until you retire and how much you need to save each month to reach your target. The younger you are, the less you need to set aside, as your savings will have more time to grow. You can use a retirement savings calculator to figure out how much you’ll end up with in retirement based on what you save and your current age.
• Your lifestyle: The typical recommendation is to have between 70% and 90% of your income before retirement saved for each year you plan on being retired. How you plan on living once you’ve retired influences the amount of annual income you’ll need. If you expect to travel a lot or live lavishly, you’ll likely need more saved than someone who expects to downsize or live more modestly. Other factors, such as your health, can also affect your costs in retirement.
• Your expected longevity: Life expectancy in the U.S. is 78.7 years, but you may live for much longer once you leave the workforce. When considering how much you’ll need to save for retirement, it can be helpful to assume you’ll live for at least 20 years after retiring.

3. Know How to Assess Your Risk Tolerance and Review Investment Strategies

One piece of advice people often get about retirement planning is not to focus too much on the small details. The market will go up and down over the years. For the sake of your nest egg, it’s important not to panic every time your investments take a dip. However, it’s good to have an idea of your overall risk tolerance and to work with an advisor to develop an investment strategy that works for you.

Risk tolerance is the amount of risk you can stand. When it comes to investing, it’s often true that the riskiest investments can have the biggest rewards. The trade-off is that you could lose a lot of money if things don’t pan out. People often have more risk tolerance when they are younger, and retirement is still decades in the future. As you get nearer to retirement age, your risk tolerance is likely to drop, and you’re more likely to choose more conservative investments. The investments might have a lower rate of return compared to riskier options, but there’s also a lower risk that you’ll lose a considerable sum.

You might need to adjust your investment strategy as the market fluctuates and your needs change. For example, as you get nearer to retirement, your financial advisor might recommend moving some of your portfolio to more conservative investments to help reduce risk.

A financial advisor can help you calculate your risk tolerance and make investment recommendations accordingly. When you work with a fiduciary, you’re working with someone who has a legal responsibility to recommend investments that are in your best interest, meaning they can’t recommend an investment that would benefit them more than you.

4. Know What to Include in Your Retirement Plan

Depending on where you work and how much you earn, you might have several options when developing a retirement plan or deciding where to put your retirement savings. The more comprehensive and well-rounded your retirement plan is, the better. You want a plan that helps you minimize your tax burden while maximizing the potential for return. Here’s what to think about when deciding where to put your money:

• Retirement account options: Many employers offer 401(k) plans or similar, which allow you to set aside pretax money for retirement. If you’re under age 50, you can invest up to $19,500 per year in an employer-sponsored plan. Depending on your income, you can also save up to $6,000 per yearin an IRA. An IRA can be an option even if you don’t have a plan through an employer. If you’d like to save more than the limits on either a 401(k) or IRA, you can set money aside in an individual investment account.
• Social Security: Many people in the U.S. will qualify for Social Security benefits once they reach retirement age. While your Social Security benefits aren’t likely enough to support you in retirement fully, they can supplement your retirement income.
• Life insurance: While life insurance shouldn’t be your sole source of retirement income, some people decide to use it as a supplement to their other investments. A permanent life insurance policy might offer a cash value component, which can provide additional income once you retire. Since permanent life insurance policies tend to cost much more than term life insurance and because the returns on a cash value plan might not be substantial, it’s a good idea to discuss the benefits of incorporating life insurance into your retirement plan with a fiduciary advisor.
• Estate planning: You may be thinking of the future of your heirs when you develop a retirement plan. Estate planning can be part of retirement planning. It can make sense to consider your legacy and how to minimize the tax burden on your heirs when you develop a retirement strategy.

Behavioral Finance Tips

It can be easy to let your emotions get the better of you when it comes to financial planning and saving for the future. Uncertainty is part of life and can be tough to deal with occasionally. To keep your retirement on track and avoid veering off course, it helps to keep a few things in mind:

• See the big picture, but focus on the here-and-now: You’ve probably heard that you need to save $1 million or more to have a comfortable retirement. While that might be true, don’t let concerns about the “big number” keep you from making steady progress on your goal. Save as much of your income as possible and start saving as early as possible to make it more likely you’ll have enough to live on in retirement. Remember, you can always adjust your goals as your financial situation changes.
• Automate the process: The less you have to think about saving for retirement, the more likely you’ll be to do it. When and where you can, automate your savings. That can mean asking your employer to automatically send 10% of your paycheck to your 401(k) or setting up recurring transfers from your checking account to an IRA.
• Remember, slow and steady wins the race: Trends and fads will come and go with time. It can be easy to get wrapped up in the next big thing and tempting to chase investments that look particularly promising. Since trendy investments can also be the highest risk, it’s often better to avoid chasing them and stick with the tried and true.
• Check-in regularly with a financial advisor: You don’t have to go it alone with retirement planning. A financial advisor can guide you, making recommendations that are in your best interests. Schedule regular check-ins with an advisor to make sure you’re on track and adjust your plan as your needs and situation change.

Retirement Planning FAQ

No matter where you are in the retirement planning process, you’re likely to have a few questions about how it works and what you can expect. Check out some answers to the most commonly asked questions:

What Are the Steps in Retirement Planning?

Retirement planning includes setting a goal, prioritizing your goals, deciding where to save your money, and choosing the right investments for you.

What Does a Retirement Planner Do?

A retirement planner works with you, taking your current situation and financial goals into account, to help you put together a plan that will get you on track and help you achieve your goals.

Should I Start Working With a Retirement Planner?

If you aren’t sure how to save for retirement or where to invest your money, it’s a good idea to work with a financial advisor. Even if you schedule a single meeting with an advisor, working with one can help jumpstart your retirement savings and set you up for a more secure financial future.

What Questions Should I Ask My current Retirement Planner?

There are a lot of questions you can ask a retirement planner to help make sure they’re a good fit for you and that they’ll do what it takes to help improve your financial situation. Ask them how they are compensated, how they make recommendations, and how much experience they have in financial planning.

What Is Risk Tolerance?

It’s important to recognize that any investment comes with a certain amount of risk. Even the most stable investments leave your money to chance. Risk tolerance describes how much risk you’re willing to accept in an investment.

How Much Should You Save for Retirement?

When you retire, all of your income will come from Social Security, your investment strategy, and the amount you saved while working. Your investment and Social Security income should replace at least 70%-90% of what you make while employed to continue your lifestyle as usual. Budgeting 10%-15% of your pre-tax income will help ensure your investment meets your needs during retirement.

What Age Do Most People Retire?

According to Annuity.org’s research, the current average age for retirement is 62. The retirement age rises to 64 for employees currently working. Waiting to retire will give you more time to save, but retiring earlier gives you more time to experience the benefits.

Talk to an Advisor About Retirement Planning Today

When choosing a financial advisor to help you put together a retirement plan, look for a company that has a fiduciary duty to you. Advisors aren’t salespeople but are fiduciaries and have a legal duty to look out for their client’s best interests, not their own bottom line.

Fort Pitt Capital Group’s Registered Investment Advisors are available to help you develop a plan for the future, including retirement. Contact us today to discuss your investment goals and start making a plan for your financial future.

Chuck Mattiucci, AIF®
Senior Vice President
Fort Pitt Capital Group, LLC
680 Andersen Drive, Pittsburgh, PA 15220
(412) 921-1822 | cmattiucci@orchid-ibex-388317.hostingersite.com

Fort Pitt Capital Group is an investment advisor registered with the United States Securities and Exchange Commission (“SEC”).  For a detailed discussion of Fort Pitt and its investment advisory fees see the firm’s Form ADV Part 1 and 2A on file with the SEC at www.adviserinfo.sec.gov.

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