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Saving Money with the Golden Rule® (401)k
Information provided by OGR Endorsed Supplier, Access Financial Group
When a small business owner considers a retirement plan for his or her business, most consider a 401(k) plan as too costly, too complex or both.
The Golden Rule 401(k) plan was designed specifically to alleviate these problems and to help you meet your retirement savings goals. With an affordable start-up cost and comparably low, annual record keeping fees, this unique plan gives you and your employees more options than ever before. The Golden Rule 401(k) plan has the added benefit of allowing you to offer benefits to your employees, giving you a leg up in the hiring and retention of employees.
Many small business owners use a Simple IRA as a retirement vehicle. Most will say that they use an IRA because there are no extra IRS forms to complete and that the cost is low. Let’s take a look at a real life example. A husband and wife are small business owners, with two employees. For 2011, the husband and wife owners, both over the age of 50, are depositing the IRA maximum allowed, ($14,000) and two employees are depositing less than the maximum, $7,000 each. Total IRA deposits for the year are $42,000. As an investment, the funeral director purchases a mutual fund from a local broker. The broker is using American Funds as an investment choice and putting the IRA’s in “A” shares that charge 5.75% commission.
The IRA cost to the business owners this year is $1,610, (5.75% sales charge on each of the owners $14,000 deposits), with the total sales charge for all four of the participants is $2,415. Most small business owners only think of the gross amount they are contributing and do not consider the sales charge as a cost. The up-front sales charge reduces the amount on deposit for each owner to $13,195. Because fewer shares were purchased, the sales charge will be felt every year thereafter due to the reduced deposit. The IRA also has a $10 set-up fee and $10 annual charge.
Now let’s look at the Golden Rule 401(k) plan. As a benefit to the membership, the OGR purchased the original plan document. A funeral home needs only to adopt this plan. There is a one-time plan adoption fee of $350. There is also an annual administration charge of $400 for plans with less than 11 employees and $775 for plans with 11 or more employees as well as a $10 per participant admin charge.
So for the example used above, the first year administration costs using the Golden Rule 401(k) would be $350 + $400 + $40 = $790. These fees cover the additional filings and testing that are required for a 401(k). With the Golden Rule 401(k) plan, Access Financial Group will do any required testing and prepare your IRS Form 5500 for you. You simply need to sign the form and submit it to the IRS.
Using our above example, the funeral home owners roll over their previous IRA’s into their Golden Rule 401(k), (thus reducing their ongoing costs). As they make their deposits, all of their money is going into their retirement savings. The Golden Rule 401(k) has higher contribution limits than an IRA and the owners want to maximize their retirement savings. The owners can deposit $22,000 into each of their accounts. Also, because the fees are paid by a corporate check, (and deducted in the year they are paid), 100% of the funds deposited buy shares in the mutual fund. They are still using American Funds.
It is important to note that the Simple IRA carries a mandatory employer contribution. This contribution is 3% of total payroll. Under the Golden Rule 401(k) there is no mandatory contribution. However, should the employer choose the Safe Harbor provision of the 401(k), a mandatory contribution would also be required.
Now for the disclaimers: The above is an example for illustrative and educational purposes only. Retirement plans are complex instruments and each business’ situation may be different. Employer matching contributions are not taken into account in this example. Sales charges vary from company to company. American Funds charges on-going 12b-1 fees of 0.25 for the IRA and 0.75 for the 401(k). Sales charges may decrease on “A” shares as deposit amounts grow. Other fund families may charge different fees. Past performance is not indicative of future results.
The Golden Rule 401(k) plan is a cost effective, easy to use retirement plan that provides higher contribution limits. It also provides employee benefits that will aid you in the recruitment and retention of employees.
Access Financial Group is always willing to meet with you to discuss in depth, your retirement plan needs. Please call Chris Chigas at (312) 655-8233 with any questions. Access Financial is an OGR Endorsed Supplier and part of the Golden Services Group since 1983.
The Golden Rule 401(k) Program is available exclusively to OGR members. Not a member? Click here to find out how you can access this and other OGR benefits.
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