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Sep 29, 201610:26 AMOpen Mic

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Succession-planning resource where you least expect it

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Retirement planning — Many business owners focus on putting money back into the business, especially in the early years, and delay saving for retirement. Your commercial banker can work with the bank’s financial professionals to help you set up an individual retirement account (IRA), SEP, SIMPLE, or 401(k).

A SEP (simplified employee pension) is an IRA-based plan for eligible employees, including a business owner, and those who are self-employed. The employer is allowed a tax deduction for contributions to the SEP plan and contributes to each eligible employee's SEP on a discretionary basis.

SIMPLE stands for “Savings Investment Match Plan for Employees.” A SIMPLE plan can be used by most small businesses with 100 or fewer employees and allows employers to make a mandatory 2% contribution to all employees or an optional matching contribution of up to 3%.

A 401(k) program offers the greatest flexibility in plan features, investments, and options for employer contributions. The annual limit on contributions is higher, up to $59,000, including a defined contribution limit of $53,000 plus an additional $6,000 for employees age 50 or older. Business owners also may defer up $18,000 in salary. One other attractive feature is the ability to provide for greater contributions to owners and key employees, a valuable tool in succession planning and preparing for retirement. In addition, employees can make Roth contributions to the plan and as well as convert an existing IRA or 401(K) to a Roth account, to reduce your tax rate and eliminate taxes on future withdrawals.

Succession planning — It’s common for business owners to want their adult children to take over a family business, and they often just assume the children will want the same thing. However, it’s important for business owners to engage their children at a very young age if they hope to transfer the business to the next generation. Your banker has access to professionals who are experienced in working with the unique needs of business owners, and can help them identify goals based on individual family dynamics.

There is no set formula for succession planning — the time needed will vary according to the size and type of business. Planning can take a year or more, and some bankers suggest planning should begin 10 years out, especially if the owner intends to retire on the proceeds of the sale or transfer. In addition, business and economic conditions might dictate adjustments to your succession plan or timetable.

Jim Lotter is Sheboygan County market president for Wisconsin Bank & Trust, Member FDIC.

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