A Tax Strategy for High Income Self-Employed and Small Businesses Owners Defined Benefit Plans for...
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Transcript of A Tax Strategy for High Income Self-Employed and Small Businesses Owners Defined Benefit Plans for...
A Tax Strategy for High Income Self-Employed and Small Businesses Owners
Defined Benefit Plansfor Small Business Owners
Copyright 2008 Dedicated Defined Benefit Services LLC
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Defined Benefit Plans ─ in the News
“Benefits in a Pension for Now and Beyond”
“Create Your Own Pension Plan: Classic retirement plans are an intriguing option for shielding
small-business income from the IRS” Fortune Small Business, February 2008
“High contribution limits and tax benefits are big pluses for DB plans”
Investment Advisor Magazine October 2007
November 2007
“Creating a pension plan helps business owners and the self-employed sock away more tax-deferred cash for retirement”
Smart Money, October, 2008
Copyright 2008 Dedicated Defined Benefit Services LLC
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Today’s Presenter
Advisor Name & photo Affiliation with CE sponsor
(DBBS) Expertise Connection to audience
Replace with your photo
Copyright 2008 Dedicated Defined Benefit Services LLC
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Agenda
Return of the Small Business DB Plan– Defined Benefit Plans At a Glance– Regulatory Changes– Market Opportunity– Compared to other Retirement Plans– The OnePersonPlus® Program from Dedicated DB
Ideal Clients
Meeting the Needs of Your Clients– Presenting to your client– Fees– Key Dates– Opening a DB Plan– Follow through
Copyright 2008 Dedicated Defined Benefit Services LLC
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Defined Benefit Plans at a Glance
Qualified retirement plans Retirement age is typically 62 or older Contributions are tax deductible Highest available contributions and
tax deductions of any qualified retirement plan
Copyright 2008 Dedicated Defined Benefit Services LLC
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DB Plans are Goal-oriented
Goal or “benefit” represents the amount of retirement wealth the plan will provide annually at retirement age
Benefit is established when plans are opened– Based on age, income and years until retirement– Capped at $185,000 per year (for 2008)
Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal
Plan can be amended to change the goal
Copyright 2008 Dedicated Defined Benefit Services LLC
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Recent Legislation Favors Small DB Plans
2000 - Repeal of IRC Section 415(e) gave highly compensated individuals opportunity to open and fully fund a DB even if they had accumulated $millions in defined contribution plans
2001 – EGTRRA lowered retirement age from 65 to 62 and increased retirement benefit from $140,000 to $160,000 per year (cost of living increased maximum to $185,000 in 2008)
2006 Pension Protection Act Increases flexibility – Integrate with a single person 401(k)
– Increase contribution in early “windfall” years
Copyright 2008 Dedicated Defined Benefit Services LLC
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A Growing Market:High Income, Self-employed Baby Boomers
From a pool of 15 million+ self-employed* (incorporated or not)
– 50% of self-employed are 45+– 27% are professionals (management, business, finance)
Approximately 1 million self-employed earn $100,000+*
By 2020: US population age 50 – 75 projected to increase 50%– From 61 million in 2000 To 93 million by 2020
*Sources: Re: Population: Self-Employment in the United States: An Update Monthly Labor Review, July 2004. Income figures derived from 2000 US census data.
Copyright 2008 Dedicated Defined Benefit Services LLC
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Retirement Plans for the “Micro-Market”Closing a Gap in Product Offerings
SIMPLE
SEP
Single 401(k)
DB
DB + 401(k)
Maximum Annual Contribution Limits in 2008 for a Business Owner Age 52, Earning $230,000 Annually, Retiring in 10 Years
$46,000$46,000
$167,900
Assumes 5-7% funding rate for Defined Benefit Plans
$51,000
$19,900
$133,600
Copyright 2008 Dedicated Defined Benefit Services LLC
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OnePersonPlus from Dedicated DBA Great Tax Strategy for Baby Boomers!
Prospects• Small Business Owner, age 45-70• Owner + up to 4 employees • Expect to Contribute 5 successive years
New Plans• Avg. annual contributions: $120,000• Avg. term: 9+ years• Prototype plan documents• Integrates with a solo 401(k)
Dedicated DB’s Service• Easy to open, efficient to administer – 2-page
adoption agreement, online proposal, forms, pre-filled annual census
• Experienced administration• Advisors & CPAs at the center to the relationship
Copyright 2008 Dedicated Defined Benefit Services LLC
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Dedicated Defined Benefit Services
The leading provider of marketing, sales support & administration services for “micro-market” Defined Benefit plans
Offers an outstanding defined benefit solution to present to self-employed and small business clients
Creates a high-quality experience for financial and tax advisors and their clients -- from pre-sale through administration
Minimizes demand for technical expertise from Advisors & CPAs by providing expert plan consulting and design
Advisor/CPA support • Expertise by phone – 866-269-2706 • Expertise online - www.OnePersonPlusTDA.com
Copyright 2008 Dedicated Defined Benefit Services LLC
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Dr. Charles, Owner-only, Age 52
Annual earnings: $400,000 Maximum DB+ 401(k) contribution for 2008: $167,900
Contribution to DB Plan: $133,600
Contribution to 401(k): $34,300 Annual tax savings: $63,800
Combined marginal tax rate of 38% DB Accumulation at age 62: $2.2 Million
10 years, 5 - 7% rate of return Annual DB Benefit: $185,000
Sole proprietor, Wants Maximum Tax Deduction
Copyright 2008 Dedicated Defined Benefit Services LLC
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The Impact of Age on Contribution: The Older, The Better
Doctor Charles Age 52 10 Years to Retirement Compensation: $400,000 DB Contribution: $133,600 Annual Benefit at
Retirement: $185,000
Doctor Tim Age 38 24 Years to Retirement Compensation: $400,000 DB Contribution: $22,200 Annual Benefit at
Retirement: $185,000
Copyright 2008 Dedicated Defined Benefit Services LLC
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Management Consultants, C-CorpMarried Couple in Business Together
5 and 7 years from retirement W-2 Income: $460,000 ($230,000 each) Total annual DB contribution: $314,400
$166,200 towards Paul’s retirement
$148,200 towards Mary’s retirement
Annual combined income tax savings: $119,500 Accumulation at retirement:
Paul: $1 Million
Mary: $1.46 Million
Paul, Age 60, Mary, Age 58
Copyright 2008 Dedicated Defined Benefit Services LLC
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Mollie, Age 55 +2 Employees
Owner’s W-2 income: $400,000
Employee 1 age 28 earning $35,000Employee 2 age 35 earning $45,000
2008 Maximum DB contribution for owner: $158,800
DB Contribution for Employee 1: $4,400
DB Contribution for Employee 2: $8,70092% of contribution for Mollie
Annual income tax savings for Mollie: $60,300* Retirement accumulation for Mollie at 62: $1.6 Million
*Assumes 38% combined state/federal marginal rate
Dentist, C-Corp
Copyright 2008 Dedicated Defined Benefit Services LLC
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Walter, Age 56, Professor at Biz School
In addition to university salary, Walter has self-employment income from consulting & serving on 2 corporate boards
Annual self-employment earnings: $150,000* Maximum DB contribution for 2008: $150,000 Annual tax savings: $57,000
combined marginal tax rate of 38% DB Accumulation at age 62: $1.2 Million
6 years, 5 - 7% rate of return
* High 3-year average, after payment of self-employment taxes
Wants to Secure Retirement with Side Income, Sole Proprietor
Copyright 2008 Dedicated Defined Benefit Services LLC
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Eligible Compensation for a DB Plan
Copyright 2008 Dedicated Defined Benefit Services LLC
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Identify ideal clients for defined benefit plans
• Typical Client Profiles• Continuing Ed Training
Reach out to prospects
• Sales Kit - letters• Client Brochures• Quick or custom proposals to show estimated
contribution and tax savings
Working Together to Meet the Needs of Your Clients
Copyright 2008 Dedicated Defined Benefit Services LLC
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Key Dates
DB Plans must be opened by the end of your client’s fiscal year, for most businesses that will be December 31st.
Dedicated DB has a special Quick Adoption process for opening plans through year-end. Clients must sign Adoption Agreement by December 31st and send with a set-up fee to Dedicated DB.
The Investment Account will be opened once the Adoption Agreement is signed.
Account must be funded when taxes are filed but no later than eight and a half months after the end of the fiscal year.
Copyright 2008 Dedicated Defined Benefit Services LLC
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Fees
Defined Benefit Plan DB Plan Set up: $1200 plus $50 per participant DB Annual Administration: $1600 plus $100 per
participant
OR
Defined Benefit & 401(k) Plans Set up: $1400 plus $50 per participant (owner
and spouse only) Annual Administration: $2050 plus $200 per participant
(owner and spouse only)
Copyright 2008 Dedicated Defined Benefit Services LLC
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Establishing a Plan
1. Contact me to Run a feasibility proposal
2. Introduce and Present Plan to client
• Dedicated DB available on a conference call• Dedicated DB designs plan, calculates contribution number
3. Complete Set-up Questionnaire with Client
• Send signed Questionnaire to Dedicated DB• With Set-up Fee
4. Client signs Adoption Agreement
5. Client opens the investment account