ILMA Compoundings July 2017 - 31

to participate and at what level,
providing the opportunity for experiences with real accountability,
promoting healthy family relationships and respecting the inevitable
diversity of an expanding family.
2. Management role: Collaborate
with the family by engaging
in their education about the
business, in relationship building,
including treating family members with dignity and respect,
providing opportunities for family
members to reinforce their values
and culture in the business and
receive "pride dividends" through

inclusion in the accomplishments
of the business.
Of course, the business must perform,
with management recognizing the power
of an effective ownership group and
both family and management maintaining a shared understanding of what it
means to preserve the family effect.
One non-family CEO put it this way:
"I use the family as a competitive weapon.
When I am negotiating a deal, I sell the
value of our owning family; their culture,
which is lived in our business; and what
they do to prepare their younger family
members for continuity and the longterm. Less-prepared family companies,

and especially public companies, can't
compete with us. These are characteristics
that make us a better partner to a customer, a vendor, a critical professional manager we are recruiting and often to another
business who wants to be acquired by a
respectful and responsible buyer."
Fassler and
McClure are
principal
consultants
with The Family Business Consulting Group
Inc., a leading management consulting firm
serving the unique needs of multigenerational
family businesses worldwide. Learn more at
www.thefbcg.com.

mind that the most important benefit of a Roth account is the
opportunity to build a nest egg of tax-free income for retirement.

After-tax: For those who are able to exceed the limits

contributions versus earnings on those contributions. If at some
point you need to take a nonqualified withdrawal from a Roth
401(k) - because of an unexpected emergency, for example -
only the proportion of the total amount representing earnings will
be taxable. Here's another example:
In order to meet an unexpected financial need of $8,000, Tina
decides to take a nonqualified hardship distribution from her Roth 401(k)
account. Of the $20,000 total value of the account, $18,400 represents
after-tax Roth contributions and $1,600 is attributed to investment
earnings. Because earnings represent 8 percent of the total account value
($1,600 ÷ $20,000 = 0.08), this same proportion of Tina's $8,000
distribution - or $640 ($8,000 x .08) - will be considered earnings
subject to both income taxes and a 10 percent penalty tax.
Keep in mind that tapping your account before retirement
defeats its purpose. If you need money in a pinch, try to exhaust
all other possibilities before taking a distribution. Always bear in

Some plans allow participants to make additional after-tax
contributions. This feature helps people who want to make
contributions exceeding the annual total limit on pretax and Roth
accounts (in 2016, the limit was $18,000, or $24,000 for those
age 50 or older). As with a traditional pretax account, earnings on
after-tax contributions grow on a tax-deferred basis.
If this option is offered (check your plan documents), keep in
mind that total employee and employer contributions cannot exceed $53,000, or $59,000 for those 50 and older (2016 limits).
Another benefit of making after-tax contributions is that when
you leave your job or retire, they can be rolled over tax-free to a
Roth IRA, which also allows for potential tax-free growth from
that point forward. Some higher-income individuals might welcome this potential benefit if their income affects their ability to
directly fund a Roth IRA.1

1
In addition to rolling the proceeds to a Roth IRA, participants may also (1) leave
the assets in the original plan, (2) transfer assets to a new employer's plan, or (3)
withdraw the funds (which in some cases could trigger a taxable event).

Portions of this article were prepared by Broadridge Investor
Communication Solutions Inc. and Mark Luschini, chief
investment strategist, Janney Montgomery Scott LLC.
Member: FINRA, NYSE, SIPC.

http://www.thefbcg.com

ILMA Compoundings July 2017

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