Question

Jonathan owns and operates a deli restaurant in New York City. It is a family business and all of the employees are family members. Jonathan wants to establish a retirement plan so he can save for retirement and the retirement of his employees on a tax deferred basis. Jonathan only wants to contribute to the plan when the business makes a profit. He is happy to contribute on behalf of his employees if the business is doing well. He wants to limit administrative fees. You have been hired to recommend a plan for Jonathan. o

Evaluate the different retirement plans available to Jonathan and recommend appropriate choices.

Answer 1

If Jonathan wanted to ask for advice about what sort of pension package he would have, I 'd have some questions for him. Issues would involve-1. Will the main source of financing be the employer? 2. Will the employer have to take care of the risk? 3. How proactive or cautious the management policy will be? In asking these questions, I might get some insight into exactly how much money he's willing to pay, and how much pressure he's willing to face on his financial savings funding. With the details I 'd suggest a modest 401k account for Jonathan's family members (who are his employees) and a standard Roth IRA for himself. A 401k account is also known as a Direct Contribution Scheme where payments are made from both employer and employee. The program is delayed taxes. This means the workers do not pay taxes on donated income and will not be paid on earned wages. However if they collect the funds the workers will be paid. The account is flexible and can be transferred to an IRA account after leaving the company. One downside for Jonathan is that the employee faces much of the risk around interest rate shifts, inflation and life expectancy.

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