Too many business owners know they should save for retirement but put planning for it on the back burner. Forty percent of small business owners have no retirement savings or pension plan, according to a recent American College study, and some 75 percent have no written plan as to how to fund their retirement.

“Business owners shoulder the most responsibility for their businesses, yet often forget to pay themselves first,” says Jeff Manley, executive vice president, wealth services regional executive – Texas, at Cadence Bank. “But if they’re not taking care of themselves along the way, this can position them poorly for the future.”

Smart Business spoke with Manley about how business owners can plan for retirement.

What 401(k) plans suit business owners?

Small, medium and large businesses can use 401(k)s. These basic retirement plans work well for companies looking for a retirement plan that includes both the owner and employees. Making this more compelling is that the IRS raised contribution limits by $500 for 2013, making them $17,500 and $23,000 if age 50 or older, for the first time since 2008, boosting potential savings.

Individual 401(k)s and Uni-k plans are for sole proprietors, or one employee plus a spouse working for the business. These plans, which are similar yet with important differences, are the highest saving vehicles for individual business owners as they allow them to put money away on a pre-tax or after-tax basis, or a combination thereof. Business owners wear two hats — contributing $17,500 or $23,000 as an employee, and an additional 25 percent of income, up to a $51,000 maximum, as the employer. A trusted financial adviser can help determine which plan is best for you.

What IRA plans are available?

A traditional IRA is a tax-deferred retirement account, while a Roth IRA takes contributions after taxes. There are different theories on which is better for whom, with many business owners doing both. For 2013, both IRA types have maximum contributions of $5,500, $6,500 for those over age 50, so they can’t support a retiree.

A self-directed IRA is a tax-deferred account that allows creative, nontraditional investing such as private equity and real estate. Normally, IRAs only invest in securities registered with state or federal authorities. However, self-directed IRAs have a lot of regulations and not all investment advisers provide them.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA, working like a traditional IRA, has relatively small contribution limits — $12,000 for 2013, with catch-up contributions of $2,500 for those over 50. Employees can get up to 3 percent company match. Although this doesn’t allow for much annual savings, it’s less expensive to administer than others.

A Simplified Employee Pension (SEP) IRA is a type of traditional IRA. The employer is the sole contributor, and the contribution must be an equivalent percentage for every employee. The 2013 contribution limit is 25 percent of a person’s salary, up to a maximum of $51,000 per employee. This plan works well with family-run businesses.

How much should be saved for retirement?

With the different contribution limits, the amount that can be saved annually varies dramatically — from $5,500 to $51,000 in 2013. Those early in their career should start saving now and try to max out the percentage they put away each year. Getting compounding earnings working early means more money in the future.

The general  rule is to save 10 to 15 percent of annual income in retirement-type savings vehicles. But those earning a good living now who want to continue their lifestyle through retirement may have to save millions. Ask a financial adviser about available options to understand what will work best for you. Retirement planning isn’t something that can be put off. Business owners need to weigh their options. ?

Guidance provided in this article is educational in nature, is not individualized, is not intended to provide legal or tax advice, and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions. You should consult with an attorney, tax or other qualified professional for specific advice regarding your unique circumstances.

Jeff Manley is executive vice president and wealth services regional executive – Texas at Cadence Bank. Reach him at (713) 871-3931 or

Insights Banking & Finance is brought to you by Cadence Bank


Published in Houston

In any economy, smart tax planning can protect income and provide opportunities for businesses to maintain their financial well being. In a tough economy, partnering with a tax professional who can help you devise a strategic plan can help you avoid surprises and can provide a critical advantage.

“We are in terrible financial times. There are lots of losses in the marketplace and income is down for many people,” says Cathy Goldsticker, member, tax services, Brown Smith Wallace LLC, St. Louis, Mo.

Rather than putting tax planning at the bottom of the agenda, start thinking about ways to cut your losses and gain tax advantages through deductions and other smart investment moves.

“There are important tax planning decisions that can be made now, and over the next year, that can give individuals and businesses more leverage as they weather the financial storm,” says Martin Doerr, member in charge, tax services, Brown Smith Wallace.

Smart Business spoke with Doerr and Goldsticker about smart tax planning strategies to consider implementing before the end of 2011, and what to be aware of for 2012.

When should a traditional IRA be converted to a Roth IRA, and what are the pros and cons?

If your traditional IRA has lost substantial value, consider converting it to a Roth IRA this year because the tax on the conversion is based on fair market value. Because that has dropped in 2011, the tax cost of the conversion will be lower.

The benefit of converting an IRA to a Roth IRA is the ability to grow the investment with tax-free earnings and later withdraw the money without paying tax. The flip side is recharacterizing a Roth IRA back to a traditional IRA if the Roth has lost significant value since making the conversion to a Roth. If the IRA was converted to a Roth IRA in 2011, it can be recharacterized in the same tax year. You have until the extended due date of your 2011 tax return to do this (Oct. 15, 2012).

On the other hand, if you are 59-and-a-half or older and the value of your traditional IRA has plummeted, consider liquidating the investment if the value is less than your tax basis (your nondeductible contributions),  as doing so would earn you a miscellaneous itemized tax deduction.

There are many issues to consider, including the impact on AMT, so talk to your accountant about whether this strategy makes sense for you.

How can an investor make the most of stocks that have lost value?

Many people have stock market losses that will carry forward, and there may be no tax advantage in generating more losses in 2011. You might sell gain stocks to use up those losses, then repurchase them immediately. There is no ‘wash sale’ rule for gains.

The success of this plan depends on the investment portfolio, strategy and market view.  Whether you think there is more appreciation left in gain stocks now, or you want to move out of those stocks and into different ones, if you have losses to use, there is effectively no tax when gain stocks are sold. And you will have higher basis in your stocks, which may be helpful if capital gain rates increase in the future.

How can someone take advantage of the $5 million gift exemption?

The current lifetime gift limit is $5 million per taxpayer, so a husband-wife household can take advantage of a combined $10 million tax-free gift. These limits apply to tax years 2011 and 2012, and, given the fluctuation of rules, this is a great opportunity for high-net-worth taxpayers to pass on their wealth to their children.

What tax benefits are available for 2011 capital purchases?

Now is the time to invest in qualifying business equipment and still realize the 100 percent bonus depreciation. New equipment such as technology, furniture and, in certain cases, leasehold improvements, can be written off. That makes 2011 a great year to put new equipment in service or make construction improvements. Bonus depreciation is scheduled to reduce to 50 percent for 2012, and, after that, it is not yet known if it will be renewed.

How do income tax rates for 2011 compare to potential rates in 2012?

Income tax rates are scheduled to remain the same, with slight adjustments based on the Consumer Price Index. However, if you have qualifying deductions, it’s best to use those in 2011 to realize tax savings sooner.

On the other hand, if you have income that can be deferred, it would be wise to defer that until next year and pay that tax later.

What planning can be done to minimize the Alternative Minimum Tax?

This burdensome tax can be an unpleasant surprise for many people.  The AMT exemption, approximately $74,000 for couples in 2011, is up slightly from 2010 but is scheduled to drop considerably next year. Even with the larger exemption, care should be taken to capture and protect all of your tax deductions. For example, if you have substantial deductions and you are in AMT, consider deferring, if you can without penalty, state taxes,   real estate taxes and investment expenses until 2012, since none of these is deductible against AMT.

However, if your 2011 regular tax is larger than your AMT, accelerate, if possible, payment in 2011 for state income tax, real estate tax and investment expenses.

Is charitable giving still a beneficial tax planning activity?

Whether or not you are subject to AMT, continue charitable giving if your heart is there for the organization. Assuming you still want to support the nonprofit, there are options. For example, if you are 70-and-a-half or older, you can make a donation directly from your IRA, which allows you to offset taxable income.

Martin Doerr is member in charge, tax services at Brown Smith Wallace LLC, St. Louis, Mo. Reach him at or (314) 983-1350. Cathy Goldsticker is member, tax services at Brown Smith Wallace. Reach her at or (314) 983-1274.

Published in St. Louis