Write A 750 To 1,050-Word Paper On The Scenario ✓ Solved

Write a 750- to 1,050-word paper on the following scenario: Jonathan owns and operates a deli restaurant in New York City

Write a 750- to 1,050-word paper on the following scenario: 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. Complete the following: · Apply the financial planning concepts we have learned in this course to guide Jonathan on the fiscal planning he must do to determine when it would be appropriate to make retirement contributions for himself and his employees. · Evaluate the different retirement plans available to Jonathan and recommend appropriate choices. · Examine the risks associated with your recommendation and the ways Jonathan can mitigate these. Submit your assignment.

Sample Paper For Above instruction

Introduction

Establishing a retirement plan is a vital aspect of financial planning for small business owners like Jonathan, especially when the business operates on a family basis. Since Jonathan's primary goals are to save for retirement, minimize administrative costs, and contribute only when profits are available, selecting an appropriate retirement plan requires careful consideration of various factors, including business profitability, tax implications, and administrative responsibilities.

Financial Planning Concepts and Fiscal Strategy

Financial planning for Jonathan involves assessing the business’s cash flow, profit margins, and future income projections. A key concept is the coordination of available cash with retirement contributions to avoid jeopardizing the operational needs of the business. Since Jonathan intends to contribute only when profitable, a flexible plan that allows for variable contributions aligns with his preference. He must also consider tax implications, as tax-deferred contributions can reduce taxable income, enhancing cash flow during profitable periods.

Implementing a cash flow analysis will help Jonathan determine how much money is available for retirement contributions and identify profitable periods for making contributions. Creating a financial forecast that projects seasonal fluctuations common in the restaurant industry is essential. This forecast informs the timing and amounts of contributions, ensuring they are aligned with the business’s financial health.

Furthermore, selecting a plan that offers simplicity in administration minimizes costs and time commitment. A straightforward plan that can adapt to the business's profit cycles is ideal, enabling Jonathan to meet his goals efficiently while maintaining flexibility.

Evaluation of Retirement Plans

Several retirement plan options are available to small business owners like Jonathan. The most common include the Simple IRA, SEP IRA, Solo 401(k), and Traditional IRA. Each has distinct features, costs, and administrative requirements:

SEP IRA (Simplified Employee Pension)

The SEP IRA is popular among small businesses due to its simplicity and tax advantages. It allows contributions solely from the employer, and contributions are discretionary, which aligns well with Jonathan's desire to contribute only when the business is profitable. The contribution limit is up to 25% of compensation or a maximum annual amount (which is adjusted periodically). The SEP IRA has minimal administrative costs and is easy to set up and maintain.

Simple IRA

The Simple IRA requires employee salary deferrals and employer matching contributions or nonelective contributions. However, since Jonathan’s employees are family members, and he prefers discretionary contributions based on profitability, SEP IRA may be more fitting because of its flexibility and simpler administration.

Solo 401(k)

A Solo 401(k) is suitable if Jonathan considers only himself and his family members are the employees. It allows for higher contribution limits, including both employee salary deferrals and employer contributions. While more complex to administer, it can offer significant tax deferral benefits and flexibility. It also provides loan options, which might be advantageous.

Traditional IRA

Although accessible, Traditional IRAs are individual plans and do not accommodate multiple participants typical of a business setting, making them less suitable for Jonathan’s family business.

Based on the evaluation, the SEP IRA emerges as the most appropriate choice due to its simplicity, flexibility, low administrative costs, and alignment with Jonathan's profit-dependent contribution strategy.

Risks and Mitigation Strategies

Each retirement plan proposal carries certain risks. For the SEP IRA, the primary risk is inconsistent contributions that might lead to perceived favoritism among family employees or gaps in retirement savings. To mitigate this, Jonathan should establish clear guidelines for when contributions are made, based on objective profit assessments, and communicate these to his family-employees.

Market risk also impacts the value of the retirement accounts. Investments may fluctuate, affecting retirement savings. Diversification of investments and periodic portfolio reviews help mitigate this risk.

Administrative risk includes potential errors in contribution calculations or compliance issues. Engaging a qualified accountant or a financial advisor to set up and periodically review the plan can mitigate these risks.

Finally, economic downturns pose a risk to the business’s profitability, which directly affects contribution capacity. Building a financial cushion and adopting flexible contribution strategies can help manage this risk.

Conclusion

For Jonathan, the SEP IRA offers a flexible, cost-effective, and straightforward retirement plan that aligns with his business's profit-dependent contributions and family-operated structure. By combining prudent financial planning, clear contribution policies, and risk mitigation strategies, Jonathan can secure his retirement while supporting his family’s future.

References

• Clark, M. (2021). Small Business Retirement Plans: Choosing the Right Option. Journal of Financial Planning, 34(2), 45-55.
• Internal Revenue Service (IRS). (2023). SEP IRA Plan Guide. IRS Publication 560.
• Johnson, R. (2022). Tax-Deferred Retirement Accounts for Small Businesses. Small Business Review, 12(4), 22-29.
• Smith, A., & Lee, K. (2020). Financial Strategies for Family-Owned Businesses. Business Finance Journal, 28(3), 15-21.
• U.S. Department of Labor. (2023). Employee Retirement Income Security Act Compliance. DOL Publication.
• Williams, S. (2021). Managing Retirement Plan Risks in Small Enterprises. Financial Risk Management, 29(1), 39-47.
• Fidelity Investments. (2023). Small Business Retirement Plan Options. Fidelity Insights.
• Vanguard. (2022). Retirement Planning for Small Business Owners. Vanguard Research.
• Bolton, P. (2020). Family Business Succession and Retirement Planning. Family Business Review, 33(4), 312-330.
• American Institute of CPAs (AICPA). (2022). Best Practices for Small Business Retirement Plans. CPA Journal, 92(6), 5-11.