Traditional vs. Non-Traditional Targets For Selling 412(i) Plans
When most producers think of a prospect for a 412(i) plan, they envision a professional between the ages of 40 and 70 (or within 10 years of retirement) who owns a small business. This business owner has created a profitable company that requires few employees, or preferably, none at all.
Typical prospects for a 412(i) plan include doctors or lawyers. For example, a general practitioner who sees patients at his office generally retains a small staffone or two nurses, technicians, a receptionist and a bookkeeper. This individual is a good prospect, but producers often overlook other doctors who are better targets for 412(i) plans. These doctors work as independent contractors for a hospital and may have no staff. They include radiologists, anesthesiologists and some cardiologists.
All 412(i) prospects should be business owners with few or no employees. There are 2 key reasons for this. First, 412(i) plans can be expensive for employees, particularly those who are older and highly paid. Second, this type of plan allows participants to save a substantial amount of money in a short period of time.
Financial advisors are drawn to the “usual” practice-oriented professionals as candidates for 412(i) plans. What few realize is that many other people could potentially qualify and benefit from this type of plan. These “outside the box” prospects are businesses that appear to have too many employees.
Upon closer evaluation, however, many of these employees are actually “free exclusions.” The term refers to employees who can be excluded from a 412(i) plan and from the plan?s coverage and participation tests. The employees fall into the following categories:
? Independent contractors. Because independent contractors own their businesses they are not employees of the companies that use their services. Consequently, a business owner who has hired independent contractors does not need to include them in the company’s 412(i) plan.