Retirement Planning: How CPAs Can Help Clients Save Smartly?

In today’s world, where costs are soaring, and individuals are saving less per one of the reports by CNBC, the retirement phase seems a bit daunting and dark to most individuals. This is because the journey toward secure retirement calls for prudent decision-making that requires expert intervention and support, which clients are now essentially looking for. 

Taking hold of this situation, CPAs can play a pivotal role by bringing invaluable expertise and guidance to individuals who strive to save smartly for a better future. A deep understanding of tax strategies and financial planning, including investment management skills of the CPAs, can help such individuals navigate retirement planning complexities seamlessly and build a safe retirement haven for themselves. 

But how can CPAs help clients save judiciously, leading them towards financial peace during retirement? 

Well, let us explore how it can be done more closely ahead!

How Can CPAs Help Clients Save Smartly?

CPAs can assist clients in saving for the future with the aid of the following retirement plans:

1. ROTH IRA Conversions

One of the most pertinent strategies that can be employed by CPAs to help clients save for the retirement phase is ROTH IRA conversions. In this, the individual can indubitably convert their traditional IRA to a ROTH IRA. 

A tax-free retirement planning, with this your client can keep their after-tax money in the account wherein they will not be taxed on funds withdrawn during retirement. In contrast to a simple IRA, there is no required minimum distribution when the individual turns 70½ in a ROTH IRA.

2. 401(k) Plans

A profit-sharing, workplace retirement plan, 401(k) can also be suggested by CPAs to their clients who wish to save efficiently for retirement. Under this plan, individuals are allowed to make annual contributions up to a specific limit for individual accounts. In 401(k) plans, from the taxable income of the employees, elective salary deferrals (except for designated ROTH deferrals) are excluded.

3. SIMPLE 401(k) Plans

A subset of 401(k), another retirement plan that can be utilized by CPAs for their clients is the SIMPLE 401(k) scheme. In this plan, an individual can choose to defer some compensation. However, in contrast to 401(k) plan, the employer must make:

• A nonelective contribution of 2% out of every eligible employee’s pay
• A matching contribution of up to 3% of every employee’s pay

SIMPLE 401(k) allows no other contributions apart from these. For employees, the contribution limit is $15,500 in 2023 wherein an additional catch-up contribution is allowed, which is $3,500 in 2023 if the employee is 50 or above. 

As for the employer, a dollar-for-dollar match up to 3% of the pay, or 2% of the non-elective contribution for every eligible employee needs to be maintained.

4. IRC 403(b) Tax-Sheltered Annuity Plans

CPAs can suggest another tax-advantageous retirement strategy to their clients, which is IRC 403(b) Tax-Sheltered Annuity Plans. Offered by non-profit organizations and public schools, it applies to the following:

• Employees of tax-exempt organizations established under IRC Section 501(c)(3)
• Employees of public school systems, involved in the everyday operations of a school
• Employees of cooperative hospital service organizations
• Civilian faculty and staff of the Uniformed Services University of the Health Sciences

The list contains other eligible participants too. Here, the contributions are allowed from payroll deductions, wherein the limit is set by the IRS as to how much employees can contribute to this plan.

5. Simplified Employee Pension Plan (SEP)

Another way to help your clients save smartly is through a Simplified Employee Pension Plan or SEP. This plan allows employers to keep aside money in retirement accounts both for themselves and for their employees. 

The best part about this retirement plan is that it does not encompass operating or start-up costs like conventional plans. It also allows a maximum annual contribution of up to 25% of every employee’s pay. SEP even extends a provision of flexible annual contributions if the individual has a cash flow issue.

6. Salary Reduction Simplified Employee Pension Plan (SARSEP)

Offering salary reduction arrangements, SARSEP or Salary Reduction Simplified Employee Pension Plan is another scheme that CPAs can employ to help clients save for the retirement phase. This plan allows employees to have their employer contribute a certain amount of their salaries to the Individual Retirement Account or Annuity (IRA), which is set up under the SARSEP.

The eligibility criteria for this plan are simple wherein the individual needs to be 21 years of age and must be employed by the employer in at least 3 of the last 5 years. Besides, the individual should also be receiving compensation of at least $750 for 2023 from the employer during the year.

7. Savings Incentive Match Plan for Employees (SIMPLE IRA)

CPAs can extend yet another retirement plan to their clients for future savings called SIMPLE IRA or Savings Incentive Match Plan for Employees. This plan enables employers and employees to contribute to the conventional IRAs set up for employees. These plans do not hold any operational or start-up costs and can be established seamlessly with the adoption of Form 5304-SIMPLE and Form 5305-SIMPLE.

The contribution criteria are that the employer needs to give in every year either a 2% nonelective contribution or a matching contribution of up to 3% of compensation for each of the employees who are eligible for the SIMPLE IRA plan. This plan is available to any small business – generally with 100 or fewer employees.

8. Profit Sharing Plans

Another pension strategy that can be adopted by CPAs for their clients includes Profit Sharing plans. This plan allows discretionary employer contributions whereby no set amount needs to be contributed to the plan. Here, the individual can contribute to the plan in a particular year and can choose not to in another year. 

Profit Sharing plans also remove the need for the business to make profits in order to make contributions to this plan. The scheme requires participant disclosure and an annual filing of a Form-5500 series. The contribution limit for 2023 is the lesser of 100% of compensation or $66,000 for 2023.

9. Money Purchase Plan

Among retirement plans, you can suggest your clients to go for a Money Purchase plan, which is essentially a defined-contribution scheme. In this, the contribution amounts are not variable but fixed.

Under this plan, the employer ought to contribute every year to each employee’s account irrespective of the firm’s profitability for the year. There exists an annual filing requirement, i.e.., the filing of Form 5500. The contribution limit is $66,000 for 2023 or less of 25% of compensation.

10. Defined Benefit Plan

A beneficial employer-sponsored scheme, Defined Benefit Plan is another option for retirement saving that CPAs can recommend to their clients. This plan works on a fixed formula, wherein it offers a pre-established benefit to employees on their retirement. The plan requires the annual filing of Form 5500 with a Schedule SB and extends the substantial benefits, which can be accrued even with an early retirement.

11. Employee Stock Ownership Plans (ESOPs)

Employee Stock Ownership Plans (ESOPs) are another defined contribution plan that can be chosen by your clients to save for their retirement phase. This plan grants a firm’s stock to its employees based on the duration of their employment. 

This ESOP is designed to primarily invest in the qualifying employer securities essentially defined by IRC section 4975. It also has to meet the given requirements of the Code and regulations. These ESOPs are provided as a retirement benefit to individuals.

12. Payroll Deduction IRA

Under this plan, the employee can establish a conventional or ROTH IRA with a financial institution and allow a payroll deduction amount from the same. 

A simple retirement arrangement plan, this scheme does not have a filing requisite and can be utilized by a self-employed individual or business of any size. In this plan, only employees make the contributions.

13. IRC 457 (b) Deferred Compensation Plans

Plans of IRC 457 (b) Deferred Compensation is a beneficial plan that can be recommended by you to your clients. The best part about this scheme is that the contributions to this plan and earnings on the retirement money are tax-deferred. 

This plan is available for:

• Certain state and local governments
• Non-governmental entities that are tax-exempt under IRC section 501 

Under this plan, employees can withdraw from their 457 (b) account when they leave employment. The payments can be taken as needed or an automatic payment request can be scheduled.

 

Final Thoughts 

CPAs have a huge responsibility when it comes to suggesting to the clients about viable retirement plans that can help them steer through the labyrinth of the retirement phase effortlessly. Though it seems daunting, with the aid of these retirement schemes, CPAs can help their clients efficiently. 

By meticulously detailing the pros and cons of each plan and helping them choose the one that best suits their interests, the retirement journey for the clients can become a breeze, a peaceful time, devoid of anxiousness and stress.