How to Help Your Business Owner Clients Save a Lot in a Hurry

How to Help Your Business Owner Clients Save a Lot in a Hurry

May 09, 2016

Advisors who work with business owners know they are often different than the average investor. A 2014 CNBC study revealed that most small business owners have 70% of their wealth invested in their businesses, with 20% having over 80% tied up in their firm. Many business owners invest most of their assets back into their company, neglecting their retirement savings.

As an advisor, it’s your job to help your clients adequately prepare for retirement. By partnering with a retirement plan consultant, you can help your business owner clients save for retirement in a hurry. Here are three ways to help them catch up:

1. Consider a Defined Benefit Plan

To save more than what a 401(k) or IRA allows, business owners can set up a defined benefit plan. Defined benefit plans have much higher tax-advantaged contribution limits and can be designed to fit the needs of a firm and its owner. Because contribution limits are based on age and income, older business owners can save a lot, especially if they are close to retirement age. A business owner earning over $100,000 may be able to defer up to $200,000 per year with a defined benefit plan.

2. Add a Profit Sharing Plan to Their 401(k)

Business owners can add a profit sharing plan to their 401(k) plan to contribute up to $53,000. Employer profit sharing plan contributions are not mandatory, but must be "substantial and recurring." This allows the owners to contribute to the plan in years that their business does well and reduce their total tax bill, which makes them a great option if cash flow is an issue.

3. Create a Combo Plan

Business owners who want to save a lot quickly can use a defined benefit/defined contribution hybrid known as a “Combo Plan.” The defined contribution part of the plan is usually a safe harbor 401(k) plan. The defined benefit part is often a cash balance plan. With a combo plan, business owners over age 60 making more than $250,000 could contribute over $200,000 to a cash balance plan, in addition to $53,000 to their 401(k) plan.

If you have business owners who want to grow their retirement savings quickly, there are a variety of solutions to consider. To understand more about the pros and cons of each option, it’s important to work with an experienced pension plan consultant. To learn more, give me a call today at 480.494.8992 or by email at

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.