How integrated retirement plans can unlock tax efficiency
by Fred Makonnen and Randy O’Brien
Mr. Makonnen is Head of Sales & Distribution, Group Retirement at Equitable. Mr. O’Brien is Head of Strategy and Solutions for Equitable’s Life Insurance business. Please visit https://equitable.com/.For the first time since 2020, nearly one in five small business owners now say taxes are their single most important problem, according to the latest monthly report from the National Federation of Independent Business. This makes sense, since taxes are often the largest expense for small business owners who must manage both their business and personal taxes.
What many business owners don’t realize is that integrating retirement plans, both qualified and non-qualified, can be powerful tools for reducing that burden. That’s understandable—after all, business owners tend to be more focused on growing their revenue than on developing sophisticated tax planning strategies, especially when they’re first starting out. But as businesses grow and scale, these initial tax pitfalls can snowball, becoming expensive headaches as their marginal tax rates grow.
Early guidance is essential. Yet advisors working with small business owners often overlook the role that integrated retirement plans can play in offsetting those burdens, often because they aren’t as familiar with retirement strategies or don’t understand the benefits for small businesses. That’s a mistake.
For advisors, tax mitigation is a valuable opportunity to build relationships and trust with small business clients. Here’s how advisors can help companies minimize their tax burdens as they expand and mature—and why they should be on every advisor’s radar for small business clients.
The Retirement Tax Advantage
Some advisors and small business owners get tax mitigation benefits from retirement plans by implementing a 401(k) for employees. Qualified plans—including 401(k)s, incentive stock options, profit sharing plans, pensions and 403(b)s—offer a tax deduction and deferral up front by paying taxes on distribution years later. But they come with considerations.
As a defined contribution plan, a 401(k) plan is subject to IRS limits on annual elective contributions, which are currently at $23,500 (or $31,000 for those over 50). It’s a smart strategy for broad employee coverage, since most rank-and-file employees contributing are unlikely to exceed those limits even at the recommended 10%-15% of gross salary contribution.
It’s another story, however, for business owners and senior executives, whose higher earning power makes it easier to exceed those limits. This is especially true with pass-through businesses that distribute profits directly to the owners and shareholders. That’s where integrating non-qualified deferred compensation plans can help.
Deferred restricted stock unit plans, supplemental executive retirement plans and other non-qualified deferred compensation plans help spread out the risk by paying taxes on contributions now, rather than at disbursement. That minimizes the costs down the road if taxes increase, which is possible eventually given the federal deficits projected to result from proposals under consideration in Congress.
Most importantly, there is no limit on the contributions, making them a smart choice for high earners like owners and key employees seeking to reduce taxes on their income.
An Overlooked Strategy
Despite the key tax mitigation benefits these plans offer, even qualified plans like 401(k)s aren’t common among small businesses. A 2024 survey found that more than half (53%) of all small businesses did not offer any plans, even traditional 401(k)s. Leaders had different reasons for forgoing a retirement plan, from complexity to cost concerns. The most common? Thinking that their businesses were simply too small.
This is an especially prevalent misconception when it comes to non-qualified plans. Many small business owners (and even some advisors) think such plans are only for large corporations or the ultra-wealthy and are far too complicated for their needs. Additionally, advisors—especially those who focus exclusively on small businesses—may not have deep familiarity with these products and may be hesitant to offer unfamiliar specialized strategies.
In reality, small businesses are some of the biggest beneficiaries of these programs. That’s why advisors should consider discussing qualified and non-qualified plans with small business owners if they suit the company’s needs.
Thankfully, many providers of these investment products now offer turnkey solutions that simplify both qualified and non-qualified plan administration. These platforms help advisors manage fiduciary responsibilities and administrative tasks more easily, similar to how pooled employer plans have improved access to 401(k)s. This allows advisors to give small business owners a simple, scalable way to offer integrated planning that includes both traditional and advanced tax strategies—even if only to start laying the groundwork for future implementation.
The Day One Roadmap
Implementing an integrated retirement plan strategy doesn’t have to be overwhelming for advisors or small business clients. Instead, a Day One/Day Two phased rollout can help minimize tax burdens while also accounting for the business’s needs as it grows and scales.
Under this framework, advisors work with business owners to first establish a qualified retirement plan like a 401(k) to minimize and defer taxes on contributions. Then, when the business grows sufficiently—with enough senior employees and sufficiently large revenue to maximize qualified plans for the owners—the advisor can help implement tailored non-qualified plans that are aligned with the business’s growth goals.
This may take a few years, but the important thing is to be ready to implement these structures from the beginning to ensure profits and income can be maximized.
More Than Tax Savings
Another important benefit of non-qualified plans? They help attract and retain top talent.
While qualified plans are governed by requirements under the Employee Retirement Income Security Act of 1974—and are even required in a growing number of states—non-qualified plans are different. Business owners have unlimited flexibility and control over these assets. That includes full discretion over who is covered by a non-qualified plan and how much it’s funded, as well as how (and how often) they are distributed. Crucially, owners can also set requirements for employees to stay with the company for a certain period to receive the payout, making them an important part of a larger ecosystem of talent recruitment and retention.
Non-qualified plans are also completely protected from creditors in the event the business runs into financial trouble, offering risk mitigation benefits for owners who want to store assets within these plans. Key person insurance, which also falls under non-qualified plans, can also help with succession planning to keep the business strong during moments of transition.
Building Stronger Client Relationships
As every advisor knows, each dollar paid in taxes is one less dollar invested in the business. And with tax mitigation top of mind for small business owners, each dollar counts more than ever.
Advisors should work with small business clients to explore whether an integrated qualified and non-qualified strategy is right for their needs—and, if so, develop a plan for implementation aligned with the company’s growth strategy. Between tax savings, retirement planning and employee recruitment and retention, this approach can help advisors demonstrate their value to clients and strengthen their relationships for years to come.
This article does not offer or constitute, and should not be relied upon, as financial, tax, or legal advice. Your unique needs, goals and circumstances require the individualized attention of your own such professionals, whose advice and services will prevail over any information provided in this article. The subsidiaries of Equitable Holdings, Inc. do not provide tax, accounting, or legal advice or services and do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article. Corporate and Endowment Solutions (CES), including its administration services arm, CES Administration (CESA), is a division of Equitable, which is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company (Equitable Financial) (NY, NY), Equitable Financial Life Insurance Company of America (Equitable America), an AZ stock company with an administrative office located in Charlotte, NC, and Equitable Distributors, LLC. Life insurance products issued by Equitable Financial and Equitable America are co-distributed by Equitable Distributors, LLC (New York, NY) and Equitable Network, LLC. Financial professionals of Equitable Advisors offer securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, (Equitable Financial Advisors in MI & TN), and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC in CA; Equitable Network Insurance Agency of Utah, LLC in UT; Equitable Network of Puerto Rico, Inc. in PR). GE-8091564.1(06/25)(exp.06/29)
It is clear. Qualified planning alone does not retain mission critical people or provide the necessary future capital needs of owners to enjoy the financial freedom they have work so hard to build. Non-qualified planning is the bridge between qualified plans and assets under management to assure owners and their key people a successful future.