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Copyright 2017 Dedicated Defined Benefit Services, LLC.OnePersonPlus is a registered trademark of Dedicated Defined Benefit Services
Defined Benefit Plans for Small Business Owners
A Tax Strategy for Independent Professionals & Consultants,
Small Business Owners and Individuals with Self-Employment IncomeSlide2
Defined Benefit Plans – in the NewsCopyright
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A Pension Plan for the Self-Employed
“Solo pension plans are a great option for entrepreneurs, doctors, and real estate agents who want to slash their taxes and turbo charge retirement savings.”
Kiplinger’s Retirement Report, August 2011
Inexpensive retirement plans for small-business owners
“The old-fashioned pension plan may be the best plan for ensuring a comfortable retirement and for attracting job applicants to your firm.” USA Today, February 2017
How Entrepreneurs Can Get Big Tax Breaks For Retirement Savings“A 52-year-old entrepreneur netting $300,000 could use a one-person defined-benefit pension plan combined with a solo 401(k) to shelter a total of $169,800 from current income taxes…” Forbes, March 2013
Turn Self-Employment Income Into A Pension By Dec. 31 To Beat The Fiscal Cliff
“If you’re self-employed, have had a good year, and want to sock away a lot for retirement, take a lead from a tax pro who advises high net worth clients, and set up a defined benefit plan by year-end.”
Forbes Online, December 2012Slide3
Advisor Name & photoAffiliationExpertiseConnection to audienceToday’s Presenter
Copyright 2017 Dedicated Defined Benefit Services, LLC.
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The Personal Pension PlanDefined Benefit Plans At a GlanceCompared to Other Retirement PlansThe OnePersonPlus® Program from Dedicated DBIdeal Financial SituationMeeting Your NeedsEligible CompensationKey DatesFeesOpening a DB PlanFollow through
Agenda
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Qualified retirement plan approved by the IRSContributions are tax deductibleHighest available contributions and tax deductions of any qualified retirement planContributions are based on:Your ageIncomeYears to retirementDefined Benefit Plans at a Glance
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Comparison of Retirement Plans
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Defined Benefit (DB) Plans May Allow Business Owners to Contribute Significantly More Earned Income Than Other Retirement Plans
Hypothetical Example: Maximum annual contribution limits in
2017 for a business owner age 52, earning $270,000 W-2 income annually, retiring in 10 yearsAssumes 5-7% funding rate for Defined Benefit PlansSlide7
Goal or “benefit” represents the amount of retirement wealth the plan will provide annually at retirement ageBenefit is established when plans are openedBased on age, income, and years until retirementCapped at $215,000 per year (for 2017)*Employer commits to achieving the goal through regular, annual contributions large enough to meet the goalRetirement age is typically set at age 62 or olderPlan can be amended to change the goalDefined Benefit Plans are Goal-oriented
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OnePersonPlus from Dedicated DBA Great Tax Strategy for Business Owners Age 40+
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Typical Plan Sponsors
Small business owner, age 40+Owner + up to 4 employeesExpect to contribute 5 successive yearsNew PlansMedian annual contribution: $130,000+*Avg. term: 8+ yearsIntegrates with a solo 401(k)Dedicated DB’s ServicePrototype plan documents eliminates cost of actuary, tax attorneyEasy to open, efficient to administer – 2-page adoption agreement, online proposal, forms, pre-filled annual censusSet up fee and annual administration feeNo administration fees based on the size of your accountYou and Your Financial Advisor Select the Investments* Based on 2016 first year contributions to Dedicated Defined Benefit Services DB plansSlide9
Sole Proprietor, Owner-onlyAnnual earnings: $500,000Maximum DB + 401(k) contribution for 2017: $227,000Contribution to DB Plan: $186,800Contribution to 401(k): $40,200Annual tax savings:
$86,200
Combined marginal tax rate of 38%
DB Accumulation at age 62:
$2.60 Million
10 years, 5-7% rate of returnAnnual DB Benefit: $215,000
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Dr. Charles, Age 52Wants Maximum Tax DeductionSlide10
The Impact of Age on Contribution:The Older, The BetterDoctor CharlesAge 5210 Years to RetirementCompensation: $500,000DB Contribution: $186,800Annual Benefit at Retirement: $215,000
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Doctor Tim
Age 3527 Years to RetirementCompensation: $500,000DB Contribution: $71,300Annual Benefit at Retirement: $215,000Slide11
Married Business Partners,No Employees5 years from retirementW-2 Income: $540,000 ($270,000 each)Total annual DB contribution: $429,500$209,700 towards Paul’s retirement$219,800 towards Mary’s retirementAnnual combined income tax savings:
$163,200*
Accumulation at retirement:
Paul:
$1.21 MillionMary: $1.27 Million
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Paul, Age 60; Mary, Age 58* Assumes a 38% combined marginal tax rateSlide12
Spouse Has Self-Employment IncomeAnnual self-employment earnings: $100,000*DB contribution for 2017: $80,000Annual tax savings: $30,400Combined marginal tax rate of 38%DB Accumulation at age 65: $463,8005 years, 5-7% rate of return
*
High 3-year average, after payment of self-employment taxes
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Susan, Age 60, is married to a high-income earning executive, and they don’t need her income to maintain their lifestyle. They want to defer current taxes as much as possible.Slide13
Owner-Only, W-2 Fluctuates2017 W-2 earnings: $185,000Maximum DB contribution for 2017: $110,300+ 401(k) contribution for 2017: $29,100Total deduction in 2017: $139,4002017 tax savings: $52,900Combined marginal tax rate of 38%DB Accumulation at age 62: $2.24 Million
14 years, 5-7% rate of return
Annual DB Benefit:
$185,000
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Kumar, Age 48, EngineerSlide14
Eligible Compensation for a DB Plan14
Compensation
Quick Reference Chart
Entity Type
Source of Income
Compensation for Plan
CorporationW-2 IncomeW-2 IncomeS-CorporationW-2 + Schedule K-1W-2 Income onlySole ProprietorshipSchedule C (net profit)Earned Income (calculate)*PartnershipSchedule K-1 (net profit)Earned Income (calculate)*
Limited Liability Company (LLC) — compensation for plan depends on how LLC is taxed. See above for partnership or corporation rules. Employees, other than owners, are paid W-2 income for all entity types. * Earned Income = net profit minus 1/2 self employment tax minus plan contribution. Deductions for sole proprietors and partners are limited to net profit minus 1/2 self-employment tax.
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DB Plans must be opened by the end of your fiscal year, for most businesses that will be December 31st.The Investment Account will be opened once the Adoption Agreement is signed. If you open the plan before year end, we recommend investing no more than 50% of the assets before you have your final year-end income statement.The investment account must be funded when taxes are filed but no later than eight and a half months after the end of the fiscal year.Key Dates
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First Year FeesCopyright 2017
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Defined Benefit Plan
Plan Design and Documentation Preparation Fee: $1250 for one person plan
$250 per additional participant
Annual Administration Fee: $1950 for one person plan
(includes Form 5500, Schedule SB, and AFTAP filings)$150 per additional participant OR Defined Benefit & 401(k)Plan Design and Documentation Preparation Fee: $1450 for one person plan$250 per additional participantAnnual Administration Fee: $2500 for one person plan (includes Form 5500, Schedule SB, and AFTAP filings)$300 per additional participantSlide17
Establishing a PlanCopyright 2017
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We can run a feasibility proposal for you
Bring your accountant into the discussion early
Once the plan meets your objectives, we’ll complete a Plan Design Questionnaire
Send signed Questionnaire to Dedicated DBWith Plan Design and Documentation Preparation FeeWe’ll send you an Adoption Agreement to signYou can begin to fund the investment account