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updated: 7/10/2011 11:11 PM

401(k) can help owner recoup lost business wealth

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Of course you remember 2007: That's the year you postponed selling your business so you could squeeze a few more dollars out of a later sale.

"A lot of businesses had been very strong and generated a lot of cash," says Joe McCaul, president of business broker Joseph Associates International, Inc., of Chicago. "A lot of that wealth was simply destroyed" by the Great Recession.

In fact, adds Marcus Heinrich, the recession "extended the retirement date for many business owners by five to 15 years." Heinrich is a partner and senior adviser at Forum Financial Management, LLC, of Lombard.

But you might be able to make up some of the dollars the recession took away. One option is to keep working and rebuild the business. Another is to take a look at your business' retirement plan. With enough cash flow, a savvy financial planner and a knowledgeable retirement plan administrator, you might be able to adapt your 401(k) plan to adjust the allocation limits most plans place on highly compensated employees -- such as the business' owner.

That can mean more retirement money sooner for the owner.

"It's all in the plan design," says Sam Schroeder, president of Administrative Retirement Services, Inc., a Glen Ellyn company that creates and administers retirement plans.

This is a good spot to emphasize that retirement plan rules are complicated, wrapped in IRS and U.S. Department of Labor requirements. Knowledgeable advisers are a must.

The goal, Schroeder says, is to "max out the benefit to the business owner." That's possible, he continues, with a 401(k) that, for example, has a 3 percent allocation to employees and a 9 percent allocation to the owner.

Though they don't seem widely known, such plans have been authorized for nearly 20 years. A cross-tested 401(k) that has been available since the early '90s "allows a company to define classes of employees and contribute profit-sharing contributions on a percentage basis to each class," Schroeder writes in a paper available on his company's website,

A safe harbor 401(k) plan, available since 1999, "allows plans to automatically pass nondiscrimination and top-heavy testing requirements," Schroeder writes in another paper.

"You need the right situation to be able to use a retirement plan to help make up lost ground," says Heinrich. Cross-tested and safe harbor 401(k)s, he says, can be ideal for "manufacturers' reps, small medical offices and other businesses with few owners and a small staff."

There are other options. If your intent has been to sell the business to a family member, selling now when the cost to buy is lower may be a workable solution, Heinrich says. Drawing a stipend to stay on as a consultant or retaining the real estate and charging the business rent can help strengthen your own cash flow.

• Contact Jim Kendall at

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