Voiceover: [00:00:00] Welcome to Metcalf Money Moment. The podcast unlock financial clarity and confidence with expert insights to achieve your goals. Hosted by Jeb Graham, Ethan [00:00:15] Hutchinson and Eric Wymore. Each episode offers decades of combined expertise in wealth management, retirement planning, and more. Join us for practical strategies to inspire your financial journey.

Now, your host.[00:00:30]

Jeb Graham: Welcome to Metcalf Money Moment, the podcast. My name's Jeb Graham. We have Ethan Hutchinson and Eric Wymore, who are our partners and co-hosts, uh, of the podcast. And today we have a [00:00:45] very special guest, which is Casey McCarthy, uh, and Casey's with EIP corporation. Uh, and I'll give you kind of a little background of Metcalf partners and, and e's uh, relationship over the years.

But EIP is a third party administrator and Casey's gonna go into that, [00:01:00] uh, here in a minute. But they partner with us and they have since, I guess it's been about 2013. So I had actually first met Cory Brash, who is the, uh, owner of EIP. We were in the same rotary club. Uh, and went out to to lunch one day.

And, [00:01:15] uh, you know, over the years, you know, for doing company 4 0 1 Ks, uh, has been something we've done for a long time. It's never been a huge focus of our business, but we have a fair amount of them, uh, that we do because we have clients that own businesses and have asked us to do it. And then we've, [00:01:30] uh, just kind of started out relationships that way as well.

Um, but it's been a great relationship, uh, and they've definitely kept us in line and made sure that all of our plans stay compliant, but. Uh, Casey, I guess we can just kind of start with why don't, why don't you tell us what a third party administrator [00:01:45] is and what you guys do and how you help companies like ours.

Casey McCarthy: Yeah, you bet. And first of all, thanks for having me on. I'm excited about this. Um, so a third party administrator is a very, kind of a unique role and uh, what we do is we're kind of one part of the, uh, of the [00:02:00] mix of players in a 401k. And, um, I like to explain this by saying we do really do two things. We design 401k plans and administer them.

And the reason that it's important to have those two components is because a 401k is really a generic term [00:02:15] for a lot of different bells and whistles you can have in your retirement plan. Um, there's a lot of different decisions to be made. We help consult, I help consult to make those decisions with the business owner as well as the advisor because I kind of say the advisor is the quarterback of the situation.[00:02:30]

So the advisor is usually sitting side by side with me or on a zoom together, and we walk through and determine what the business owner wants because again. Uh, some plans are designed primarily for the business owner to max out what they can put away for them themselves. [00:02:45] Some are designed to attract and retain the best employees.

Most are designed with both in mind. Um, business owners spend so much of their time and effort building their business that a lot of times they get a little bit of a late start on their retirement saving. And so if they, you know, get to 45, 50, [00:03:00] 55 and decide it's time to really ramp that up, 4 0 1 Ks a lot of times get started then.

But then it's a benefit to everybody because the employees benefit that as well. So we are kind of one of the players in a 401k, but we are kind of, in my opinion, I'd say the best place to [00:03:15] start if a business owner wants to start a plan.

Jeb Graham: Yep. And real quick, just so to, to differentiate our role versus your role.

Okay. So when we get a new 401k plan, typically what we're doing is, as, as Metcalf partners is we're gonna educate the employees. [00:03:30] Um, so basically we're gonna go over fund selection, we're gonna. We're gonna help 'em pick what funds are in the 401k. Uh, we're gonna go over fund selection. We're gonna educate them about how much, uh, money they, based on how much money they're saving, what that should accumulate to, [00:03:45] given certain rates of return over the years.

And you guys are actually number one, keeping that, that, that plan compliant, right. And making sure that ev that it, it meets the rules of a 401k plan. Yeah. Uh, and then you're also, to your point, [00:04:00] designing it with the business owner. To, to help them maximize the amount of money that they can either save on taxes, uh, by, by making contributions, possibly doing profit sharing, and then also, um, you know, maybe just [00:04:15] saving into the Roth portion of that as well.

So you're, you're helping them kind of design it to where it benefits them and their employees in the best way. Correct.

Casey McCarthy: Exactly. E, exactly. And to chime in on that, we, we don't, not only, uh, not only do we not help with the fund decisions. We are [00:04:30] not legally allowed to do any of that. And, and, and you as the advisor are, that's, that's something you focus on and you're very good at and you're qualified to do.

Um, but yes, uh, you also as the advisor decide who the TPA is gonna be. So you decide if we're the firm to hire [00:04:45] and you decide who the custodian is gonna be, which is where the assets go, when somebody puts money in the plan or the business puts money in the plan. Um, so yes, that's exactly right. So there's, there's different, different players in the 401k because of the fact that, that each.

Each role [00:05:00] is very specialized in the 401k.

Ethan Hutcheson: Nice. Casey, we, we come a lot. We, we've got a lot of small business owners, and a lot of the times, just to your point, you know, they, they might be later in life and, and they've got the business going and [00:05:15] now they're ready to, to start buckling down, right? There's a lot of options that are out there.

Mm-hmm. Um, you know, there's, there's solo case, simple IRAs set, IRAs 4 0 1 Ks, defined contribution, defined benefit plans, you name it. The, the main one that we kind of discuss with our, [00:05:30] with our business owners is the 401k, but we also bring up like a simple IRA or a ep IRA. Can you kind of differentiate the two for us and, and just why you'd pick one over the other?

Casey McCarthy: Absolutely. Um, so let me start with asep. Asep. [00:05:45] ASEP is a simplified employee pension plan, and that's usually a great option for somebody who's a sole proprietor individual. Um, who wants to put away, you know, some money more than an IRA or a Roth IRA? Um, a simple is, now you, [00:06:00] you guys deal with SEP and simples more than I do.

So, 'cause they don't need to be administered like a 401k does and we don't do those. But a simple kind of adds that salary deferral component or an employee can put in their own money as well. But where a 401k happens is. The most basic thing [00:06:15] is if the business has more than a hundred employees, you can't have a simple, so it's not even an option, but we play in the, in the space of under a hundred employees all the way down to one and the 401k.

The first thing is you can put a lot more into a 401k than you can with a simple. A [00:06:30] simple, you're limited to the 16,000 if a sated deferral if you're under 50 and it's 19,500 if you're 50 or older. Or if you're old, uh, 50 or older. Correct. Um, that's for 2025. And then the employer can either do [00:06:45] a, uh, dollar for dollar match up to 3%, or they can do a 2% non-elective contribution is what we call it.

But where they give 2% to everybody in the business. Whereas a 401k has much higher contribution limits. And do you want me to mention those real quick? Sure. Yeah, that'd great. [00:07:00] So in a 401k, the salaried deferral, what the employee can put in is for 2025, it's 23,500. If you're 50 year older, you get a $7,500 catchup contribution, which means they're, the IRS realizes you're closer to retirement, so they want you to be able to ramp [00:07:15] up your salary deferral or contributions to the plan that can get you to 31,000.

With that, the employer can do what's called a safe harbor contribution, which is, like I mentioned, the dollar for dollar match up to three or the 2% non-elective [00:07:30] contribution is simple. It's similar, but we recommend a dollar for dollar match up to four or a 3% non-elective contribution. Safe harbor is another story.

We don't need to dig into that, but the profit sharing, which I believe Jeb mentioned earlier, allows the [00:07:45] employer to put in money on behalf of the employees and the owners that they'd like. Um, that can get a person if the numbers work, 'cause it has to pass testing. 'cause the IRS and Department of Labor don't wanna be upset at you.

Um, that can get anybody who's under 50 up [00:08:00] to 70,000 with those buckets all added up. And then anybody 50 or older can get to $77,500. So. Wow. So the, the, the main, the main difference with a simple, in my opinion and a 401k is the contribution limits. The other kind of [00:08:15] ancillary, um, addition to that is. You can have a lot more restrictive.

I mean, you can have more restrictive eligibility requirements in a 401k. You can have vesting, um, in a 401k where that profit sharing can take up to six years for an employee to be vested, which [00:08:30] is kind of golden. The handcuff idea where it encourages those employee employees to stay. And then I think kinda the last thing that I mentioned is, and this is maybe a little bit of a soft benefit, but a lot of people don't know what a simple is.

If you tell a prospective [00:08:45] employee, Hey, we have a simple. They might be like, I don't know what that is, but everybody knows a 401k is a nice benefit and it's touted all the time. So I think that's kind of the summary, kind of the comparison between those. Ethan.

Ethan Hutcheson: Yep. Nice.

Eric Wymore: I've always felt that it's, you know, the [00:09:00] retirement plans for a business are a little bit more of a a certain levels, right?

You got the self-employed. That'd be a good option for a set. You got a little, you know, kind of a startup plan. You wanna keep the lower cost lower, uh, IRS filings. You go with [00:09:15] the civil, and then you get a little bit more complex, a little bit more contribution limits, and you go to the 401k. And then there's, there's other, other, uh, avenue, which is called a cash balance plan.

And I know that a lot of things have changed recently with a cash balance [00:09:30] plan, uh, that make them more attractive than they were say, you know, a handful of years ago. I was wondering if you could maybe touch on kind of what a, what a cash balance plan is, how it works with. You know, works with the 401k and so on?

Casey McCarthy: Absolutely. Great question. Um, [00:09:45] I kind of would say that a cash balance plan being added to a 401k, so a 401k is a 401k and a profit sharing plan together. So I'll just call it 401k. When you have a 401k and you add a cash balance to it, I kind of say you kind of bolt it onto the 401k 'cause they work in conjunction, [00:10:00] you're kind of supercharging your retirement because you're not only getting the 70,000 or the 77,500 in the.

401k profit sharing plan. But the cash balance plan is a defined benefit plan. And kind of [00:10:15] like you mentioned, Eric, the the, the defined benefit plan. The defined benefit plans used to be the old fashioned pension plans that have really gone away because employers don't want the liability of having to.

Pay for somebody's [00:10:30] retirement until they pass away. Back when these were popular, people didn't live to be a hundred, a hundred plus. Um, and so they've kind of gone away. But this type of defined benefit plan is still employer contributions only, but it [00:10:45] kind of has a 401k type feel to it. But it allows people to contribute much more.

And I'm talking. If somebody's in their sixties, they might be able to contribute 200,000, 250,000 more. And it's all in tax deferred [00:11:00] status, similar to a 401k plan. So it is, it's not something that somebody, um, who's making a lower amount of income would wanna do, because first of all, they're not gonna be able to take advantage of.

The amount you can save, but they're also more expensive. We actually, [00:11:15] um, hire a, we partner with a firm out of Chicago that does a phenomenal job and all they do is cash balance 'cause it requires an actuary. They've got, I think, 70 actuaries on staff now. We don't have any actuaries on staff. We stay on our lane and do 4 0 1 Ks.

But, but I completely agree with [00:11:30] you. It's, it's a great thing to consider if somebody's making high six, you know, into the seven figure level income it is. Pretty amazing. And what they've done to improve these is, is great. We're doing them quite a bit with, with [00:11:45] our firm outta Chicago.

Ethan Hutcheson: So, uh, small clarification on that piece.

Yeah. So hypothetically, you've got a 401k and a cash balance plan right side by side. Let's say the business owner's putting 200,000 a year in their cash balance plan. Can they still, and let's say they're above [00:12:00] 50. They can still get about $77,000 into their 401k plan. Yes. Right alongside that $200,000 contribution.

So

Casey McCarthy: put, put together, you're you're, you're really Yeah, exactly. You're really jumping that up. 'cause the 401k and profit sharing plan is gonna be the [00:12:15] same. Now the, the caveat is the firm outta Chicago that we partner with, who's called October three, they do a phenomenal job. They run the illustrations, the calculations to make sure it runs, it works correctly with the 401k profit sharing because these are two separate.[00:12:30]

Legal entities. These trusts the, the defined contribution 401k and the the defined benefit cash balance. The testing has to work where the amount going into cash balance, which is really where the business owner can maximize their, their contributions into [00:12:45] retirement. It has to work in conjunction with the profit sharing part of the 401k.

It gets very complicated. That's why. We have to hire, you have to have an actuary do the numbers for the, for the cash balance. But, but that's correct. It's not one or the other. It's together, both of them. So. Great [00:13:00] point. That's pretty

Jeb Graham: amazing.

Casey McCarthy: Yeah, it is.

Jeb Graham: Well, I'll, I'll tell you too, so I know when we work with business owners, I feel like there's, there's two purposes for them doing a retirement plan.

One is, is they wanna stock away money, right? Is they wanna have this big nest egg, uh, for themselves and for their employees. [00:13:15] But the other one's the tax benefits. And so, and I know. No matter what client it is that we're talking to, taxes are always kind of front and center.

Casey McCarthy: Yep.

Jeb Graham: And, um, and being able to put money away.

And I, I feel like the tax benefits of these things have changed now with Roth [00:13:30] options, uh, being, being more common than they used to be. Uh, as well as you've got, like Ethan was just talking about just massive amounts of money that if you have two plans that you can stock away in a tax deferred manner.

Um, so let's talk a little bit about the tax credits and tax [00:13:45] benefits. I know we had secure Act 2.0. You've got. Pre-tax, post-tax contributions. So let's hit on that.

Casey McCarthy: Yeah, absolutely. Um, so the Secure 2.0 act that passed at the end of 2022, um, had 92 different provisions that changed retirement [00:14:00] plans. And I'm just gonna be honest, as somebody who works for a firm that we combed through that top to bottom, back to front, it, it, 'cause we have to be on top of it.

I will say most of them are kind of throwaway. I mean, a lot of these things we're probably never gonna see 4 0 1 Ks [00:14:15] incorporate the thing that just jumped out where I. As the Director of Business Development thinking, oh wow, this is huge, is these tax credits being offered. The IRS with the original Secure Act was offering some tax credits for businesses to encourage them to set up [00:14:30] plans.

And these aren't tax deductions. These are tax credits. This is better. It's dollar for dollar offsets on their taxes. Secure 2.0 really just turbocharge that and they've got really three different tax credits for businesses that have never had a 401k before. Never had a simple or a [00:14:45] sep. Now there's still some of these benefits if you, if you've already had a simple or set.

But if you've never had a plan at all and you're setting up a 401k, and especially if you're setting up a 401k and you have a number of employees, they're pretty rich. So let me kind of walk through the three. [00:15:00] The first is called the administrative, um, the administrative expense tax credit. And this is.

For businesses under 50 employees, which most businesses setting up a 401k are under 50. I mean, it's really rare that a business is hundreds of people and they finally set up a [00:15:15] 401k. But if a business is under 50 employees, they get a tax credit of $250 per non-high compensated employee to a maximum of $5,000 for three years.

So let me first all, first of all say what [00:15:30] a non-high compensated employee is. The IRS breaks every plan into a highly compensated employee and a non highly. A highly is an owner, a direct family relative, a relative of an owner who's working in the business, or somebody who earned more than [00:15:45] $155,000 last year for this year would be considered a highly comped employee.

Everybody else is non highly. So that up to $5,000 is a three year tax credit that literally can make the plan free for three years. The second one is [00:16:00] called the Employer Contributions tax Credit, which basically says anybody who earned less than a hundred thousand dollars the previous year, if the employer contributes a thousand dollars or more on their on their behalf from the employer, they can get a dollar for [00:16:15] dollar tax credit for that thousand dollars for the first two years.

For every employee who made less than a hundred thousand dollars that they do that for. So if the business has 10 non highs, 10 staff and the business gives them a thousand dollars or [00:16:30] more, they're gonna get a $10,000 tax credit for years one and two. And that trails off for year three, four and five. 75%.

Year three, um, 50%, year four and 25% year five. So it's a $10,000 tax credit, years one and two. [00:16:45] $7,500. 5,020 500. That's on top of the first one I mentioned. So those are layered. The third one is a simple one. It's if you set up what's called an automatic enrollment on a 401k, which is something the IRS loves.

It basically says if you, if you become [00:17:00] eligible in a plan and you as an employee don't opt to get in the plan or opt not to get in the plan, if you do nothing, you're gonna be swept into the plan because it's to your benefit and it's. It's good for everybody, but if you set that feature up, you get a $500 tax credit for [00:17:15] three years.

So if you add those three together, I mean, what I say, just if I put it in a nutshell, if you've been thinking about setting up the plan and you're kind of on the fence, the IRS is literally making the plan potentially inexpensive or free for three to five [00:17:30] years. So. Why not do it now? Because the IRS has never paid you to set up a plan before.

Jeb Graham: That's right. Well, I, why weren't these credits available when we set up our 401k?

Casey McCarthy: Good point. Exactly.

Jeb Graham: So that's awesome. But that's awesome.

Casey McCarthy: Yeah. [00:17:45]

Jeb Graham: Well, and I know too, I guess, I guess lastly, um, maybe just we can hit a little bit on, on Roth contributions and maybe some misconceptions there. Um, and, and we run into this all the time, like we'll have a client in and we're like, Hey, you should do your Roth [00:18:00] 401k.

And they're like, well, I make too much money to do that. And we're like, no, you don't. And I think there's a misconception out there that, that the, the income limitations are the same on a Roth IRA as they're on a Roth 401k. But I think that's one of the, an amazing benefit now is that somebody that's not, not been able to do a Roth [00:18:15] for years and years can now do not only do Roth, but put $23,000 or more into one every single year.

Casey McCarthy: Yeah. That's great. Um, so, and just to, to let everybody know for 2025, the maximum that a single person can put into a Roth, uh, or the, the [00:18:30] maximum income that a person can make and still contribute to a Roth, just a Roth IRA is $161,000. If you make $161,000 or more, you can't even contribute to a Roth at all.

If you're married, you the maximum is $240,000. [00:18:45] So if your income is over those two, you might think a Roth is no go. Well, that's not true. As Jeb mentioned in a 401k plan, a 23,500 max, or if you're 50 or older, $31,000 max that you can do in [00:19:00] salary deferral where you contribute to the plan can be all Roth if you want.

It can be partially Roth. We've got plenty of, of, um, employees at businesses and plans that we administer who do 50% in traditional 401k contribution and 50% Roth. But [00:19:15] that's a great point. You can still do your 23,500 or 30, 31,000 into Roth, and it's kind of a way to skirt that, that, that, uh, negative to making good money.

I mean, I know these PE nobody's complaining about making good money, but it is kind of a bummer that they can't put put [00:19:30] money into just a traditional, like a rough IRA. Yeah, this is a great way around that. That's a good point. It is. Cool.

Jeb Graham: I'll tell you too, when we build out financial plans for clients, you'd be surprised.

Like I think a lot of people have the conception and we don't need to go down, you know, this can of worms, but, [00:19:45] um, that they have the conception that, that, uh, if they're in a higher tax bracket and they're younger, it's better to do tax deferred than, than than raw. And we run that because we use E-Money as our financial planning software, and we run plans all the time to see [00:20:00] which, which one of those is more beneficial.

And you'd be surprised that people that are in a very high tax bracket that the plan will still say to do a Roth 401k specifically, uh, when they're younger, right? Because their money's is, their money has so much more time to grow and it grows tax [00:20:15] free. It lowers their required minimum distributions down the road.

And then, you know, I guess the icing on the cake is that it passes tax free versus passing as a traditional IRA, uh, that, that has stipulations as to how quickly you've gotta take the money out and you pay [00:20:30] taxes on it. So. Um, it's, I just love the fact that Roth 4 0 1 Ks are a thing now. Yeah. And that they're, they're very widespread and, uh, and we're doing the best we can to educate as many people on that as possible.

So,

Casey McCarthy: can I chime in? Two other things I say about the Roth [00:20:45] is that people will say, oh, well, I, I, I'm gonna, I'm gonna be in a much lower tax bracket when I retire. And I would say, well, the timeout depends on how much you take out from your retirement accounts. Because if you take out half a million dollars on a given year.

Your tax if, and it's just traditional, your taxes that you just earned, [00:21:00] uh, $500,000. So don't assume your tax level is gonna be lower when you retire, but I think the key to a Roth for anybody of any age is its tax diversification. You then have, so the way I look at it is I've put money in Roth and traditional, [00:21:15] um, over the years and when I retire, what that means is if I know I wanna take out a certain amount of money, I can take out.

In taxable money up to the point of the next tax bracket, and then above that I can take out tax free money from my Roth. So [00:21:30] now, you know, we all know that it's graduated tax structure, so it's not like my, if I'm taxed at a certain level, it's not for everything. It, it grades up. So why not hit that, you know, if I know that this is the dollar amount where my tax jumps up, then I can do Roth above that.

[00:21:45] So it's tax diversification as well.

Jeb Graham: Yeah. Yeah. It gives you a lot of flexibility in, in retirement. Yep. So,

Casey McCarthy: exactly.

Jeb Graham: I know we're running out of, uh, kind of running up on our time here, so, um, this has been a great show and, and, uh, Casey thank you to, uh, for coming on. Thank [00:22:00] you to EIP and to Corey and all of you guys for being such great partner over the years and, um.

Hopefully we'll be, have you on here again someday. So,

Casey McCarthy: absolutely. And, and thank you for your partnership. You, you, you, you guys have been great at Metcalf Partners. You've done a great job with us and we really appreciate the partnership.

Jeb Graham: That's [00:22:15] great. So, well thank you. And this is Metcalf Money Moment podcast and we are signing off.

Voiceover: Thanks for tuning in to Metcalf Money Moment, the podcast. We hope [00:22:30] today's episode provided valuable insights to help you unlock financial clarity, confidence, and peace of mind. For more expert advice and resources, visit metcalf partners.com. Until next time, make every money moment count.[00:22:45]

Disclaimer: Jeb Graham, Ethan Hutchinson and Eric Wymore are registered representatives with and securities offered through LPL Financial Member FINRA SI PC Investment advice offered through WCG Wealth Advisors, a registered investment advisor, W CG Wealth Advisors, [00:23:00] and Metcalf Partners Wealth Management is AR separate entity entities from LPL Financial.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may suitable for you. Consult the appropriate qualified professional to making decision. All performance, [00:23:15] no of future.

All indices are unmanaged.