BY: Thomas J. Perrone, CLU, CIC
One of the biggest problems with high earning business owners is the limitation on the amount of contributions they can make towards the 401k or other contributory plans. The limitation is driven by the makeup of the employee group and the comp
The problem is trying to fund their final earnings of the last 3-5 years with a contributory plan where there are limitations to the number of contributions they can make.
For example, a business owner currently earning $250,000 versus an employee earning $100,000.
When you compare the same situation with an employee who is earning $100,000 a year you can see the inequities in the level of funding of a retirement plan and the final earnings.
Because the high earning owner (HEO) is limited, they can’t use the contributory plan to fund a sizable percentage of their retirement. Consequently, executive compensation programs are needed to make of a good part of the difference in final pay.
The video discusses one of the ways to make up the difference for the HEO.
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