Estate Planning Chaos for the Business Owners

Why do some Business Owners have higher costs than others when…


–      They settle their estates…
–      They retire…
–      They transfer their business….
Let’s call the above items, “triggers” 
Over the years I have had the experience of seeing the end results of the estate settlement process for many business ownersIn many cases the results were not pretty because of the excess settlement costs. From my own experiences and case studies with associates, I have come to the realization that some business owners have higher estate transfer costs than other business owners. The interesting thing is the excess costs can be controlled by the estate owner. 

Business owners usually have more value in their estates because of business values and settling the estate can be usually more complex. But as mentioned, in my opinion, there are controllable aspects of the costs and ways to mitigate these costs.


Estate transfers Cost: Three major reasons for higher costs!

 No planning: This includes not having any plan, or not updating any earlier planningTheir estates are complex, and they need more than surface planning when their situation calls for more complex planning to carry out their goalsThis takes more time and moneyWithout it they pay a price in estate settlement because they designed the wrong plan or have no plan at all. 

No time: In many cases, there isn’t any time to make changesIt is too lateAll the changes should have been made in advance. Therefore, working on their business and estates yearly is a major benefit as opposed to waiting until it’s “too late”. 

Owners don’t spend enough time asking the “what if’s” of their situations. Every year many changes come out of Washington that affect business and estate planningBeing unaware of these changes makes them vulnerable to excessive estate settlement costsIn many cases the business owner loses by default. 

No liquidity: Settling the estate takes moneyIn many cases, most of the wealth is in the business and other personal hard assets which are difficult to turn into cash within a o  brief period.

§  Even if they could be liquidated, they either run the risk of losing value, or causing major tax issuesConsequently, the estate is open until the taxes are paid and dissolution of assets is completed, causing major costs. Wealth gets stuck in business and its value is at the mercy of the market and other economic factors. 

§  To prevent the lack of liquidity, we suggest that business owners use the business cash flow to create executive compensation plans with tax-free death benefits, and tax-free withdrawals. By doing this they create liquidityWhen an estate owner dies, there is a guarantee that a tax-free death benefit will create the liquidity neededFunded by the company cash flow

Succession of the Business

No planning within the business for successor management. No building of a key group or key person to learn the business as an owner. Consequently , when the time for transition is near, there aren’t many optionsThis affects the “most potential value” of the business. The time to start planning transition of the business is when you start your business or buy a business! The key group is also the group that starts to define the culture of the business, making it easier to attract talented employees. 

 No systematizing of the business- the owner has not taken the time to prepare systemsEverything is in their heads, literallyThere are no written down notes, no manuals or guides to pass on the instructions to others“In simpler terms, the boss must be around for things to get done.”   This limits the future ability to sell the businessPurchasers are looking to buy a business that has growth potentialNor do purchasers in most cases want to invest in a company that has to restructure its operations. A purchaser is not likely to invest in a company where systems are not in place, and which are not transferable. 

  No development of “value drivers” to create growth and culture. Consequently, there is no culture, systems, and no middle management to take on responsibilities or a group to transfer the business to as mentioned aboveThis is a major issue with companies. A true test is asking the business owner if they can take 30 or more days off a yearIf not, I tell them they have a job, but not a business. The owner of the business has not let go of the control they have of the business. It’s the business that controls the owner


Retirement Planning and Why the Wrong Type Causes Chaos!

 The wrong type of retirement plan- although qualified plans like 401k’s or profit-sharing plans are good for rank and file. They are not always the best retirement vehicle for high income business owners for a few reasonsQualified plans are riddled with rules that business owners don’t need in their life. Qualified plans are needed in the company to attract employees, so in many cases, they are a particularly good method of attracting employeesHowever, for the business owner, Executive Compensation plans are more usefulHere are why qualified plans can be a thorn in the side of the high earning business owner:   

  • No discretion as to who gets what amount in the plan-meaning the owner doesn’t get 100% of the distributed amount.
  • Who is to be in the plan- The owner can’t discriminate as to who should take part in the plan
  •  No use of money 59 1/2 without penalty- Business owners are always looking for cash to support their businesses. The inability to withdraw funds from their retirement account is problematic when funds are needed
  •   Age 72 RMD forcing high income owners to pay more taxes- business owners usually have other assets to rely on for incomeIt could be passive income from rents, income from the business and income from investments
  •   IRS in your life – Qualified plans need to file with IRSHowever, if business owners used executive compensation plans, this is something they could avoid. 

Many business owners can use executive compensation programs to develop wealth outside of their businesses and get great tax efficiency. For example, using a “Corporate Equity Executive Plan” will allow the owner of a company to use the company cash flow, pay 10% of the tax they would pay under a pension plan, and create a tax-free family bankThe family bank allows the owner to use the money, tax-free, any way they wishAlso, they are not forced to take the money out when they are retired. 

For more information about business planning, I am offering YOU A FREE copy of my eBook, “Unlocking Your Business DNA” FREE Business guide which will help you understand some of the planning concepts used in retirement planning, business succession and estate planningCLICK HERE for your free download. Your book will be downloaded automatically. 


If any problems with your download please email me; tperrone@necgginc.com

“The Story of Retirement for The Business Owner” 

It is quite common for an employer to think in terms of a qualified retirement program when they think of retirement.  The benefits of having a company plan would be tax-deductibility, tax deferred, an employee benefit to help attract employees, and a host of other reasons to have one.  Most companies should have a long-term retirement plan for their employees. Most accountants will normally jump on this idea because it is another tax deduction.  

However, what is rarely discussed are the benefits that the owner of the company receives from the qualified retirement plan!   In most cases, the qualified retirement Plan will not be the best choice for the owner of the company, for various reasons.   

Here are a few disadvantages for the high-income business owner:  

  1. No control of deposit amounts  
  1. Limited contributions 
  1. Government controlled IRS FILING 
  1. Administration costs- actuarial costs, filing, accounting 
  1. Employer is the fiduciary is having responsibility and accountability to the plan (what happens when the employee loses money in the market?) 
  1. After-tax cost and non-recovery of the net outlay for the company 
  1. The percentage of payout for the employer is usually a much smaller percentage compared to the employees when they retire, so the employer owner is being discriminated against  
  1. The withdrawal is 100% taxable on all the funds 
  1. Tax exposure and penalty for using the funds before 59 ½.      
  1. Forced distribution RMD 
  • For the employee, having a 401k and/or profit-sharing plan is a great deal.  They could have matched contribution’s ability also.  It is probably one of the best ways for people to save for their retirement.   
  • The business owner or highly paid executive has the problem of creating enough capital for retirement so it can produce enough income to narrow the gap between their final pay and retirement needs.  In most cases, because of the limits imposed on qualified plans and the taxability of the withdrawals, the qualified plan will not be the answer.   
  • High Earning Business Owners – it’s a different story! 
  • However, for the high earning employer, this is not a great deal compared to other executive compensation plans the employer could be. implemented for them.  There are several major pension destroyers for the employer when comparing retirement plans vs executive compensation plans.  
  • Disadvantages of a qualified retirement plan to the “high earning business owner”, compared to using a CEEP! 

  • Limited contribution amount 
  • 100% of withdrawal taxable at retirement – With a CEEP you control the contribution amount 
  • Pre 59 1/2 with penalty.  
  • Funds in a qualified contribution plan would be very hard to extract (hardship clauses) 
  • Bottom line, when the employer needs funds to build inventory, buy equipment, payroll, retirement funds are not a source, however, in a private executive compensation plan, they would be.  
  • With a CEEP you have access to funds without a penalty 
  • Death benefit; limited to accumulated fund, and taxable in a pension.  
  • With an executive compensation plan like the CEEP, the death benefits are tax-free and large 
  • CEEP would have a large tax-free death benefit to finish the retirement that wasn’t even started, and the benefit would be tax-free 
  • Deductible:   
  • Contribution plans are tax deductible as the contributions are made, consequently showing a charge to earnings in the year of contribution.   
  • CEEPs are balance sheet friendly as a receivable asset with interest.  
  • CEEPs can be cost recoverable for the company, while retirement contributions are not. The qualified pension contributions are normally tax-deductible when made, but not recoverable for the company.  
  • With a qualified plan, you are forced to take RMD (Required minimum distributions) 
  • With CEEP, you are not.  CEEPS distributions are tax-free. 

Table below: A qualified contributory plan doesn’t do the job when the owner of a company has an interest in growing wealth through their business.  As mentioned, the contribution must be shared with the other employees, and there are rules as to the maximum contribution which high earners can make.  In this case, the owner only could put the $30,000 in their account. With the CEEP Executive Compensation plan, the full $50,000 could be deposited into the account of the owner of the company! 

Plan Contribution Future Value 66 Gross 15 payout Taxes YRLY Net Income 
Qualified 30,000 893,351 80,348 24,104 56,244 
CEEP 50,000 1,863,708 165,099 165,099 

Many advisors including accountants, lawyers, and financial professionals are not aware of some of the great programs that can be designed using executive compensation.  The CEEP program (Corporate Executive Equity Plan) is a flexible design built around the tax code.   

Here is a chart comparing a Profit-Sharing Plan/401k and a specially designed CEEP Executive Compensation Plan.  

ITEM PROFIT SHARING 401K CEEP 
Tax deductible Yes Yes, optional 
Tax deferred growth Yes Yes 
Government Controlled Yes No 
Selective as to Participants No Yes 
Pre 59 1/2 availability  No Yes 
Tax Free withdrawal No Yes 
Death Benefit Only current accumulated value of account, taxable Immediate substantial tax-free benefit 
Required Minimum Distribution Yes  No 

Bottom line:   

Contributory plans like 401k’s, SEPS, simple plans and IRA are wonderful plans for employees to save money for their retirement.  However, given the above list of restrictions for employers, they are not effective for high income business owners in my opinion.   

Note:   I used 30% marginal bracket. Over a 15-year payout, the pension would have a $361,560 tax liability, while the CEEP was tax free.

To learn more about The Small Business Super Retirement Plan Just for Business Owners and High Earning Executives, request our free White Paper. CLICK HERE! 

Someday You Will Leave Your Business By Retirement, Death, Disability Or Drop Dead At Your Desk! Do You Have A Method Of Taking Your Business Equity With You In A Tax Efficient Way?

There are millions of small businesses in the United States, and many of them have something in common, and that is that they do not have a succession plan.  

I have heard figures like 80% or higher do not have a succession plan. Over 50% of the companies that have a succession plan, have either outdated plans, or incomplete plans.  

Why is this an over whelming problem with small business owners? Why would a business owner not want to make sure their “lifetime of effort” isn’t lost because of a lack of planning? 

SCENARIO: Someday all business owners will leave their business, either by retirement, death, disability, or just drop dead at their desks.  

 There will be a great loss in the value of the company because of this lack of planning, and consequently, the owner or the family will not receive the true potential value of the business. 

While I cannot explain why business owners do not do their planning, I can tell you some of the reasons the business owners and their family will not get the true value of their company when one of the three triggers occurs (retirement, death, and disability) They would be: 

Lack of planning -. They do not implement systems such as value drivers’ systems, next middle management, systematizing procedures, and others business building procedures. These are the elements that create the future value which a purchaser looks for when buying a business. 

The lack of planning also includes the failure to develop a middle management which could take over most of the tasks of the owner. By not creating a middle management, it leaves the owner as the indispensable person, the essential person in the firm. This is a dangerous position for the future of the company. It may be the greatest threat to the future value of the business.  Like anything else, when you lose the essential indispensable part of a machine, the machine will not work.  This is the same for the company when the owner is the “essential and indispensable” employee.  

Time- Most systems need time to develop and cultivate when building a business. Processes and systems need years to mature and create the potential value of the company. Consequently, when the owner gets near retirement with no more road left to plan, it is too late. Selling the business at the most potential value is not attainable. 

No liquidity: Many business owners put too much of their wealth in the business, such as inventory, machinery, receivables, and benefits, to name a few. They do not make the adjustment to using business cash flow to create wealth outside of the business, like pension plans, executive compensation plans, and other value building programs. Consequently, when capital is needed, it is hard to raise it, and is not readily available to the owner when needed the most.  

When business owners, decide they want to retire, and leave their business, they find themselves in a conflicted position. Because they did not take the time to plan, they have run out of time, and they will not yield the value they would have normally received if they had done planning over the years.  

The only options they may have:  

  • Sell at a reduced price 
  • Stay in the business until they find a buyer willing to buy at this price 
  • Continue in the business to fund their “retirement years” 

The bottom line is to start your planning early. My suggestion would be on the day you buy or start your business, start implementing a transition plan, as most of the transition planning requires an extended period in order to implement.  

Get your free Business Transition Commonly Asked Questions Report! Click here! 

The Costly KNEE JERK FINANCIAL SUGGESTION!

Over the years, I have been asked by business owners how they can use their company to create more tax deductions and to build retirement funds for themselvesWhen you put tax deductions and retirement funds in the same sentence, it suggests the vanilla response, of a pension plan of some type or a contributory retirement plan, like a profit-sharing plan, or a 401k. 

However, is that what a business owner is really askingOr, do they mean, they would like to build retirement funds through the business and assume they can get tax deductionsOr do both elements co-exist in the plan that they are thinking of? I think most advisors would suggest a 401k plan, a cash balance plan, a simple plan, or a profit-sharing plan for example. 


 This is what I call the costly, KNEE JERK REACTION. When asked by a business owner, about retirement plans, I have learned to slow it down and ask the business owner to clarify exactly what they are trying to accomplish, rather than rattle off a KNEE JERK response, such as a “profit sharing plan, or 401k plan”

Questions like:  

–      Do you want to include everyone in the plan? 

–      Do you only want to favor yourself and family? 

–      Are you trying to give a benefit to a specific employee?

Do you want all the contributions to end up in your account, or are you willing to share with other employees? If so, how many and who?

If the employer/employee is trying to stockpile contributions to their account, they will have limitations with money purchase plans (limitations on contributions for 2022 of $58,000.) This makes it hard to deposit substantial amounts of money into the employer’s individual account, since they must include everyone

Based on the response, this will determine how I design the planIf he wants to spread the dollar among the group, you are talking about a qualified retirement planOn the other hand, if they want limitations as to who can be involved, they are speaking about a non-qualified executive compensation plan

In this model, I compared two scenarios so my client would have an idea of the difference in absolute dollarsI based the model on conservative values and returns, staying consistent with both types of plansI am comparing a CEEP to a Hypothetical Pension plan (money purchase plan). [i]

As you can see in the chart below, based on the same parameters for each plan, the CEEP program created much more retirement benefits for the owner than a qualified retirement plan

The owner participant received a much higher payout (tax-free), than the pension plan. In addition, if the owner died, from day one, the CEEP plan would pay a substantial tax-free amount to the family, while the qualified plan would only pay what was in the account which would be taxable to the beneficiaryThe CEEP death benefit would be 100% tax free and would not be required to be withdrawn at death, or older ages like a pension or IRA plan would

Once you compare a CEEP to the Pension plan, you can then see why defining exactly what the owner wants to accomplish is important as both plans offer different benefits and different tax scenarios

KNEE JERK advice happens more than you thinkAnd when it does, it can cost your client a lot of money, NOT to mention your reputation as an advisor

In this case, the “Knee Jerk” suggestion to use a pension plan to solve the problem, shortchanged the business owner from having greater benefits for the future when compared to the suggested pension plan. 


[i] In this scenario, the owner could only put in $30,000 of contribution out of the $50,000.  Based on a five many company and different salary ranges. 

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The Easy Process To Identify and To Solve The Problems!

The Easy Process To Identify and To Solve The Problems!

Excerpts from My book, “Unlocking Your Business DNA”

The One Page Solution!

As we start the process of fixing the problems, they need to be identified. In chapter 1, I discussed how the business owner needs to find their “Business DNA”. Again, this is about focus and asking the right questions, and giving the business owners the amount of time, they need to think it through.

I break down the issues into two categories, BUSINESS GROWTH AND TRANSITION.

Business Growth: Focuses on the business itself such as the strategies needed to grow the business, the systems, the culture, and its employees. It is all about the business future.

Transition: Focuses on the categories that relate to the owners, and the changes they need to make in their personal life because the business is growing.

I keep these categories separate because the issues concerning the business growth are different than the owners transition issues. However, as the business growth changes, it affects the transition of the owners, and vice versa.

It is very important that the business owner is committed to fixing their problems.  If they are not, the first time they have a business roadblock, they will tend to put planning on the back burner.  This is a mistake, because most of the time it does not resurface until there is a crisis.

However, in our planning we do create action plans in small steps. Having a team of advisors working together creates the ability to complete the small steps needed to accomplish our goals.

An Example:

A perfect example was when a company we were working with had plateaued in growth and wanted to create more business growth. When we went through some of the planning questions, I realized the owner had spent no time systemizing their business.

The owner had no documentation of operational systems of his business, but instead it was all in his head. He would delegate the tasks to his employees like a drill sergeant.  He never even thought of the fact that there was no continuity in his business, consequently, if something happened to him, the business would have ended.

I asked him, “could you go on vacation for three months and not check in during that time”?

He looked at me and laughed, replying, “are you kidding this place would fold in seven days.”

I replied, at least you are real, the sad part however is you do not have a business, you have a job. You have a position, a paycheck, and a place to go, but you do not have a business.

He looked at me dazed! But he knew I was right.

The Process Using “One Page Solutions”, will keep everyone on track.

To uncover the issues and problems with the business owner we go over the main subjects called “ONE PAGE SOLUTIONS.”  On any subject there are always a few directions in which the business owner can go. We discuss them and analyze what are the most important subjects the business owner needs to deal with currently. “THE ONE PAGE SOLUTIONS” ARE LISTED BELOW.

Each Subject has a few sub-topics we review with the owners. As we DISCUSS the One Page Solutions, we find the strategies which will solve the issues. Once we are done with the subject, we move on to the next One Page Solution, if any.

THE FOCUS AREAS of the “One Page Solution” ARE:

1-Sale of Business (outside)/ Evaluation Methods/Timing

2- Inside Transition (Family, Co-Owners, or Key Employee/s)

3-Passive Ownership- Owner wants to still run the business, but take long trips

4-Retirement; defining and preparing

5-Wealth Accumulation & Asset Protection (both in and out of the business)

6-Premature Death- Consequences

7- Estate Distribution- updating

8- Life Insurance Contracts and Benefits

9-Legacy Planning / Management of Legacy

10-Disability and Illness, Medicare, and Medicaid

11-Key Employee Retention- and Creating A Culture

12-Key Employee Owner’s Manual- systematically creating company manual, business coaching, marketing proceedures

13-Corporate Benefits and Retirement- cost and efficiency

14-Qualified Plans and Personal Liabilities- Executive Compensation

15-Family Relationships/Employee Relationships/Human Resource

We helped a business owner recently with the problem of not having business growth over a prolonged period of time.  The solution was to put in place strategies that would create transferable values for the future.

They included things like creating key group, documentation, standard procedure, diversification, and growth strategies.

In this case we realized this will take some time to implement. The owner was under no delusion that this will be done in one year. Most importantly the owner started the process. A few years from now he will see the outcomes in all its glory. Because we have experts in our toolbox, we shared our professional advisors with our client for coaching purposes, and education.

Besides implementing a few systems, they will also do a business appraisal every two years. Over a period, this will help them evaluate the growth of their company by implementing the systems suggested.

By doing this the company could allow for better planning in the future, and adjust the path towards financial security, and business growth.

One of the key elements to helping Business owners solve problems is to also identify the roadblocks. This eliminates the surprise factor should our implementation strategy not go as planned. In one of our planning agendas, we discuss these roadblocks and try to define the subsequent issues and challenges in the future.

What is extremely important in this process is that it makes the owner aware of any potential issues they must have to deal with in the future and stay ahead of the problem curve.

Over the years what has been extremely helpful has been the communication with the team. Again, these are the client’s advisors that may or may not have been in place before we started planning. Since we update the team regularly, we are often given new advice that has been helpful in forecasting future events in the business.

We normally would not have this knowledge if we did not have the team of advisors in communication. This is one of the biggest advantages of working with the team and having periodic reviews.

We have been successful helping business owners work on their business to get issues resolved and to focus on details. We use a One-Hour a month system for the business owner to do this.  This allows the business owner the brevity they want, but also, gives them quality time to organize the details of their business. Through our step-by-step system, we help business owner cover all the key issues that are needed to cover to run your business smoothly, take more time off, earn more money and just enjoy working and life much better.  

If you would like a FREE WHITE PAPER called “Your Business Essential” which will help you organize your business, CLICK THE LINK BELOW, download the white paper. This is a 128-page guide in business planning Your Free. When you click submit on the form, your file will immediately download.  Enjoy. 

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You can purchase of “Unlocking Your Business DNA”, AT Amazon. All profits to to Wounded Warrior Foundation and other Veteran groups.

How The Buy-Sell Agreement Fits Within the Scope of An S Corporation!  

Part 1 

BY Thomas J. Perrone, CLU, CIC 

Normally, a business makes up a substantial portion of the owners’ net worth. Many business owners do not think about what will happen to their business in the event of their death or a life changing event (trigger).  

This article will focus on why a buy and sell is an important document, one of the most important you will need. 

We will also discuss the buy and sell agreement in the context of an S Corporation since S Corporations are extremely popular. 1 

Consequences of not creating a buy-sell Plan.  

  • Stress on the business’ cash flow or credit line having to purchase the decedents owner’s interest  
  • Unqualified and instability with employees running the company 
  • Disagreements and conflict among heirs increasing administration time and costs 
  • Lack of a market for business which may potentially represent a significant value in the estate 
  • Suppressed value much below fair market value to raise cash for estate needs 
  • Termination of the business 
  • Instability amount employees and creditors 
  • Lack of liquidity to pay estate taxes and other administration costs 
  • Stream of income to remaining family members from the business is lost 
  • Valuation disagreements and IRS litigation 
  • Nightmares of not having a Buy and Sell agreement in a S Corporation! Loss of eligibility as a S Corporation resulting in involuntary termination of the S. Corporation status 
  • Most transfers to entities such as partnership, Corporation and most trusts are prohibited transfers 
  • A termination of S Corporation status will cause the Corporation to be taxed as a C Corporation as of the day of termination creating income tax consequences to the shareholders.  
  • Corporation, which is terminated, must wait five years before making a new S Corporation election, resulting in Corporation being taxed on its net profits for five years.  
  • The surviving shareholder could face additional tax burdens on future ongoing Corporation distribution and on those made upon the sale of the Corporation 

Funding the buy and sell agreement is always a challenge to companies, because it comes down to four ways of funding a triggering event 

  1. Borrowing money from the bank 
  1. Using cash flow out of the business 
  1. Life insurance death benefit 
  1. Cash  

When you compare the costs of funding the buy and sell agreement, life insurance will be the least expensive by a long shot, in most cases, especially, based on a death trigger.  

Other triggers, like divorce, sudden removal from the firm, voluntary and non-voluntary removal from the firm, bankruptcy, and disability are triggers where there is not a death benefit being paid, but money is needed. In these cases, a promissory note may be used in conjunction with a term payout, or installment loan payout.  

However, the cash buildup of a life insurance policy could be used as a funding vehicle especially if the policy has been in force for many years.  

In Part 2 we will investigate how the buy and sell agreement fits within the scope of an S Corporation.  

FREE REPORT “Jones Business Planning and Succession Report” ASK FOR REPORT R3 

CLICK HERE 

Tax Effective Strategies For RETIREMENT PHASE 2

In the Phase one report I discussed why only focusing on the accumulation stage of retirement could be a big mistake.  I emphasized the need for tax diversification in retirement to create the largest after-tax spendable dollar to help maintain your lifestyle when you retire.   

I have seen where people have allocated  their investments in categories relating to the type of tax structure the investment has, and then positioning the category to a timing of when to start taking the withdrawals from the category.  Here are the categories:  

Type of Category Contributions Type of Growth Distribution 
Equities After Tax Tax Deferred Growth Taxable 
Taxable Income After Tax Taxable Growth Taxable 
Tax Free Income After Tax Tax Deferred Tax Free 
Tax Qualified Pre Tax Tax Deferred Fully Taxable 

One method of distribution would be to defer the withdrawal from accounts that are tax deferrable, to grow the value for as long as possible.  As you can see in the chart above, most of the accounts are tax deferred.  However equities, if they are individual stock, may be tax deferred when outside a 401k or IRA, only to be taxed when they are sold.  They may have taxable dividends yearly which would be taxable.  Equities could also be personally purchased mutual funds which are taxable, and in many cases are not the type of account where you can control the timing of the tax exposure.   

One strategy would be to use the taxable income plans first to give the other plans the opportunity to grow through tax-deferment.   Or, we have seen where clients pull out their taxable income from the investments and supplement the balance with tax-free income plans from life insurance or the Roth IRA.   

Other Distribution Methods 

One might consider taking the taxable income category first since the income is taxable.  The 2nd category may be the qualified plan money since that is 100% taxable. The 3rd category may be the equities which are taxed less than then category 1, 2, and are taxed on a capital gain basis. The last category would be tax-free because, the assets can grow tax-deferred over a longer period, and then give off a tax-free income, normally when more income is needed (purchase power and time), and all income would be tax-free.   

Sometimes you need to withdraw income from two or more categories for reasons.  For example, let’s say you are now receiving social security, but you are also receiving taxable income from your mutual funds, but you don’t want to create more taxable income which may disqualify you from some potential benefit.  Or by receiving more taxable income, your social security tax liability will jump from 50% to 85%.   

A consideration under that situation would be to withdraw tax-free income to support the needed income without causing an increase in taxes.  Another need may be to qualify for housing benefits like freezing property assessments.  Tax-free income may be the only way to qualify. 

Qualified plans such as 401k, 403b and IRAs, are the most heavily taxed.     Most people deposit their retirement savings into company plans since they are readily available through their employer.  Very rarely are employees educated as to the tax exposure of the account when they retire, and many are surprised at the taxes they have to pay on the withdrawals.  

In my planning, I use quadrants, I call my system, the “Asset Cycle Portfolio” and make the qualified retirement plan and IRAs the main generator of income.   

I suggest to our clients that they  defer the tax- free income plans, but I do let our clients know that the plans are a great place to grab money for the  support of their larger purchases such as cars, second homes, and other items.   

By using the tax-free life insurance plans, or Roth plans, they avoid paying tax today, and can defer the other accounts.  I like the idea of the “family bank”, using the life insurance, as you can withdraw the money tax-free, and then replace the funds.  I find this a great vehicle with great flexibility for life’s changes.   

It is not uncommon for our clients to finance their new cars using tax-free cash value and pay the loan back at an assumed low rate which they set.  By repaying the loan just like they would if it were a bank, they create the ability to reloan in the future the same money.   

For example, I have a client who purchased their high-end vehicle at the end of the lease by loaning his consulting firm the money to buy out the car.  His firm now has to pay him back over five years at 3%.  He will make about $3,000 in interest earnings, plus his company can take the tax-deduction on the interest of the loan paid to him. 

The big picture 

It’s more important to invest in different categories of assets to have the ability to develop a tax wise strategy when you retire, as opposed to a one demension investment strategy.  By doing so, you can take advantage of tax laws, eliminate unnecessary taxes, and create family banks with effective tax leveraging.   

For more informtion on how to use Tax-Free Life Insurance, request my FREE WHITE PAPER, “Wealth Without Taxes”  

Pension Maximization Using Life Insurance To Provide The Guaranteed Capital!

For people who are in pension plans, (yes there are some in the private section, but mostly in the government sectors), they face a decision at retirement  of how to take the retirement income distribution. 

Basically,  they have two options.  They can take a lifetime income, which is the highest income the annuitant can receive over their lifetimes.  Or, they can take some variation of a survivorship  benefit for their spouse.  The 50% joint payout is the normal payout, however, some plans will allow 75% and 100%.  The higher the percentage spousal benefit, the lower the annuitant payout.     

Example:  

This example uses the joint and survivor 50% payout. 

Let us assume if the annuitant takes the single life payout, the payout would be $2,100 per month.  If the annuitant took the survivorship options, the payout would be $1,600.  There is a $500 difference per month.  Should the spouse die first, usually, the surviving annuitant is stuck with the $1,600 for their life.  

On the other hand, if the annuitant took the life income of $2,100 and dies first, the spouse receives nothing.  

Options: 

A great guarantee options, is to purchase  a life insurance  plan in the amount which will represent the present value of the survivorship value would be. 

By purchasing a $285,000 life insurance policy, using an assumption of 3% earnings on the investment, the payout would be guaranteed for 20 years.  If the annuitant wanted the $1,600 a month for a 25 year period, the present value is $334,332.  

Scenario: 

If the annuitant dies first, the pension would end, however, the life insurance would be paid tax free.  The surviving spouse could invested  the proceeds and take withdrawals from the account  equal to what the spouse would have received under the joint and survivor pension payout.  The spouse could take more or less, as needed. 

If the spouse predeceased the annuitant the  life insurance can be cashed out, or continue to stay in force to create a legacy for the family.  The policy also can also be used to supplement a retirement income for the annuitant using the cash value. 

Unlike the pensions joint and survivor option, the Pension Maximization Plan offers much more flexibility in the planning.  It also allows for maximum payout should the annuitant live a long life while providing security for the spouse. 

Special Free Report”; If you are interested in a tax-free retirement sponsored by your company, get this special report called; Wealth Without Taxes.  This is a plan designed for business owners and key executives, not the rank and file.  Besides tax free benefits, the program offers business owners the ability to shift business income to their personal ledger with minimum tax exposure. To get this report, CLICK FOR YOUR REPORT   Once you fill out your email information, you will receive the report.  Thank you. 


https://youtu.be/DF-GwmDD6kQ

Click to view a 4 minute video.

The Six Most Costly Financial Mistakes Business Owners Make Costing Them to Owe Huge Taxes!

Many business owners are unaware of the opportunities they have in creating wealth through their business.  Many owners put too much wealth in their business, where it can be tied up or hard to get out.  It also prevents them from accumulating outside retirement funds.

There are several ways to create wealth through your business on a tax-efficient basis which many owners are not aware of.  

I would like to share with you the six mistakes that prevent owners from creating more wealth by utilizing the business cash flow. 

  1. NOT IMPLEMENTING A CEEP: (Corporate Executive Equity Plan) for themselves.  This is one of the most tax effective methods of creating personal wealth using corporate cash flow.  The cost of providing this wealth creating account costs the owner about 30% of the tax cost.  Example: if the company bonused $20,000 to the owner for a personal retirement plan, the tax cost would be $6,000 each year.  However, under a CEEP arrangement, the cost would only be a $60 the first year, and about $1,200 the 20th year. This is one of the most misunderstood concepts in executive compensation by attorneys, insurance professionals and CPA’S.  Consequently, it might be considered under used.  However, the executive compensation specialist understands how the plans work and how it can be of great value for the business owner in shifting income from the company to the personal side of the owner. 
  2. NOT TAKING ADVANTAGE OF THE SECTION 412(e)(1): which allows the owner to make a substantial number of tax-deductible contributions into a retirement plan skewed towards the higher paid owner.  Example, the owner aged 50 can deposit up to $213,905 fully tax-deductible.  Great for good cash flow companies.
  3. NOT USING THE “SAFE HARBOR RETIREMENT PLAN”: where a substantial amount of the tax-deductible contributions can be allocated to the higher paid participants.  Also, included in this arrangement is the “Cash Balance Plan”.  These plans create greater tax-deductions for higher paid employees.   
  4. NOT TAKING ADVANTAGE OF   A RESTRICTED BENEFIT PLANS (RBP): which is a discriminatory and tax-deductible plan.  It can be used to provide valuable benefits to retain key people.  The business owner keeps the forfeitures if the employee leaves before vested. This can lock your key group to your company.  
  5. NOT CREATING A DEFERRED COMPENSATION PLAN:  This is a flexible, separate, and discretionary retirement benefit that can also become a mechanism for funding the sale of your business in the future and create retirement income. The pot is sweetened when you add a DBO (Death Benefit Only) to the planning. 
  6. NOT CREATING AND NOT FUNDING YOUR BUY AND SELL AGREEMENTS: A disability, long term illness, or death may occur long before the owner planned to exit their business, creating a path to financial disaster not only for the owner, but their family, partners, and employees.  This is one of the most egregious mistakes I see business owners make.  Many times, it goes unnoticed by the advisors.  This is one of the reasons why I am an advocate of check-off lists, “fire drills”, and annual reviews.[i]

Simply Put!  By Utilizing These Common Benefits, Owners Can Maximize Their Fullest Potential Business Value! 

To help you understand some of the ways to utilize your business cash flow to create more wealth for you and your family, I put together this FREE WHITE PAPER, CALLED “A TAX -FREE LIFESTYLE FOR BUSINESS OWNERS”, AND I would like to GIVE this FREE WHITE PAPER TO YOU.  

THIS REPORT will help you understand how you can use your business to take advantage of discriminatory benefits   plans for yourself, family members, and key employees.    The Tax-Free Lifestyle REPORT is strictly for small business owners who want to grow their business while creating more wealth outside of their business.   I designed this white paper to help business owners avoid the COMMON MISTAKES made by other business owners which forced them to work more years, save less retirement, pay more in taxes, and tied up too much wealth in their business, creating more stress, and had no free time for themselves! 

You’ll also discover in the TAX-FREE REPORT:

  • One simple concept allowing you to retire with more wealth or retire years sooner.  (This one simple financial principle is rarely ever talked about on “pop news” financial TV shows or by other so-called “financial planners”. 
  •  2 proven strategies to increase cash flow and reduce expenses if you really want to sleep at night!
  • 3 secret ways to have your business build a tax-free wealth account for your personal and business use!
  • Your Business DNA” Understanding this key allows you to double your savings and retirement investing without making a single dollar more in income or investing in more capital equipment and labor.
  •  5 value drivers to prepare your business for a sale, even 20 years in advance!
  • How a simple inexpensive benefit plan can keep your key people! 
  • How creating a Deferred Compensation plan can help finance the future sale of your business.
  • How having a benefit plan for you in the future can lower your cost to sell your business?
  • Misleading and incorrect “old wives’ tales” about creating wealth in your business. 
  • Tax saving strategies that 9 out of 10 business owners don’t use and end up paying more taxes
  • Much more…

TO RECEIVE YOUR FREE   NO OBLIGATION WHITE PAPER Called: 

The Tax-Free Lifestyle for Business Owners”

To request your free white paper 

CLICK SUBMIT:     Wealth Without Taxes Report

Once you submit your email address, you will receive your report immediately! Enjoy!

Now you may be asking…Why would I spend my own money to send you this FREE WHITE PAPER? Think of it as my personal introduction… a way for you to get to know me better.  Nothing more than that! 

Often enough, when business owners learn the information in this guide, they decide they want to know more about what we do, and possibly do business with us so they can have our business owner expertise and in-depth knowledge of how business owners think.  I know, I am one of them. I know what you think because I think about it all the time.  Let’s say 24/7 to be safe! Just as you value the expertise in your business field, I believe working with a financial expert who knows what it is to run a business and knows the business world is critical to your financial health.

That’s it!  Let me send you “The Tax-Free Lifestyle for Business Owners”.   Do with it what you want. Maybe you’ll want to talk to us further, maybe you won’t.   There is no obligation to do so.

Either way, I think you’ll find the information in this report will be immensely valuable to helping deal with the “what if’s, grow your business value, enjoy it more, and create more time for you and your family while creating an almost “stress-free” life with tremendous financial freedom in the future.  Oh yes! NO TAXES EITHER!    Visit www.yourbusinessworth.com  to learn more! 

FOR A 7 MINUTE VIDEO


[i] Paul Hood: “Buy and Sell Agreements- the last will and testament for business owners”.  Paul discusses his check off list, and his “fire drill”.  I am an advocate for these systems to make sure the buy and sell agreement is a perfect of a fit to the entity and owners as possible.