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IARC 24

Wealth accumulation strategies for today’s auto recycler

As an auto recycling business owner, achieving financial independence can be challenging without a solid plan in place. Robert Steward, Tax Consultant at R.E. Steward & Associates, based in the US, provides Auto Recycling World readers with his knowledge and experience of how you can adopt the right plan to accumulate more wealth potentially.

 

Wealth accumulation strategies for today’s auto recycler p
Robert Steward

For business owners seeking financial independence, the value of their business can be uncertain. Establishing a defined benefit/contribution pension plan can provide financial security for retirement and significant tax savings, but requires commitment and careful management.

For most business owners, the path to economic independence rests pretty much solely on the worth of the businesses that they operate on a daily basis.

However, when factoring in all the potential swings that can drastically alter the value of one’s business, it can be a little challenging to realize that point of financial independence, without a solid alternative plan in place.

Over the years, we have witnessed those clients of ours, that have formulated and adopted employee benefits plans that reward key employees (the owners included) for their hard work, devotion to the company’s success and tenacity, a degree of financial security for their future retirement years.

Now, we’re not talking about achieving that security in 25 or so years, but rather in a 12 to 15 period. It can be done, but not without a consistent commitment to ensure that it will happen. Therein lies the key!

So, specifically, we’re recommending the establishment of a defined benefit/contribution pension plan for companies with 4-12 employees or less, not including ownership. Because of how these plans work, typically, the fewer employees, the better.

The tax savings are so significant that, in most cases, the annual contributions are actually being subsidized by the Federal and appropriate State tax agencies, to the tune of 30-45%, depending on the nature of the taxable entity that’s reporting the income (LLC, C and S Corps, Sole Prop, etc). So given the tax savings alone, the concept is worth looking at.

Beyond the initial tax savings, another caveat is the fact that all the earnings generated by the assets within the scope of the plan(s) are tax-free to the participants of the plans until distribution begins to occur.

However, much like anything else in the business world, there are “no free lunches”. The plans will most likely require mandatory contributions unless provisions are established that the contributions can be minimized or possibly deferred in the event that the operation’s net profitability does not allow for a “planned” contribution.

There are other “cons” associated with these plans but are quite manageable. The key is to have the right plan creator and administrator in the formulation and management.

We have also found that funding these plans is easier if done in as small increments as possible. So instead of one annual contribution, you can consider monthly, weekly or even daily.

There are also two levels of management that should be addressed within these plans. One is the management of the plan’s assets, and the other is the governance of the plan itself, having to do with hiring and compensation policies such as part time vs full time, ages of employees and wages vs perks for existing employees.

We would be remiss if we concluded this discussion without sharing some examples of how effective these plans are in accumulating wealth. Over the years, we’ve observed dozens and dozens of these plans be established, and in almost all cases, the asset values of a given plan accumulated at least $250,000 in 2-3 years and $1 million plus in 5-7 years, not taking into account the immense tax savings.

If you would like to see how these plans could work for your business reach out to us at restewardassociates.com.

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