Date post: | 04-Jan-2016 |
Category: |
Documents |
Upload: | marjorie-singleton |
View: | 214 times |
Download: | 1 times |
Big Tax Savings with Retirement Plans
Presented by:Eric PetersenHicks Pension Services
History of Pension Plans
1875 1st Pension plan created 1900 1st Union pension plans 1921 1st retirement plan for Federal Workers 1935 Social Security Act introduced – Retirement
age was 65 but life expectancy was only 63 1942 1st Federal law allowing employers to deduct
pension plan contributions 1960 Start of smaller employers establishing plans. 1974 ERISA pension law passed. 1978 401-k provision added Now Only 12% of all smaller employers offer plans.
DB vs. DC Plan
Defined Contribution plan limits the amount of money going into the plan.52,000 per year57,500 if over 50 years old
Defined Benefit limits the amount of money coming out of the plan.210,000 dollars per year.Amount allowed at age 65 is 2.4MM
Cash Balance Plan
Same as a Defined Benefit PlanWorks best when there are several
employees in the plan.
2.5 MM
Age 65Age 55
250,000 dollars per year
How the plan works
2.5 MM
Age 65Age 55
190,000 dollars per year
5% per year
2.5 MM
Age 65Age 45
72,000 dollars per year
5% per year
2.5 MM
Age 65Age 45
72,000 dollars per year
Over Funded
Fully Funded
Under Funded
Funding Range
Plan assets must be within 50% of the fully
funded level
Investing in a Defined Benefit Plan
An over-funded plan is penalized Under funded plans are required to make
up the difference Predictability is very important Trust should aim for a 5 % return per year Most plans are not invested properly
What to watch out for!
Client should be 50 or older. Plan should run for at least 3 years. Must file forms with Government Must not have older employees.
Add a 401-k deduction to the plan
Increases overall deductible amount by $ 23,000 per year plus optional 6% of pay for Profit Sharing
Adds a little flexibility DB-k
Standard Profit Sharing Plan or SEP
Name Age Salary Pro Rata % Pro Rata $
Owner 60 260,000 20% 52,000Employee 20 25,000 20% 5,000Employee 35 40,000 20% 8,000Employee 55 60,000 20% 12,000
Total 77,000
% to Owner 68%
Cross Tested 401-k Profit Sharing Plan
Name Age Salary 401 kContribution
Cross-Tested %Employer
Contribution
Cross-Tested $
Owner 60 $260,000 23,000 $ 34,500 $57,500
Employee 20 $25,000 $ 1,250 $1,250
Employee 35 $40,000 $ 2,000 $2,000
Employee 55 $60,000 $ 3,000 $3,000
Total $370,000 $63,750
% to Owner
91%
Cash Balance/401-k Combo Plan
Name Age Salary DB Cont. 401(k) Profit Sharing
Total Annual Contribution
Owner 60 200,000 200,000 $23,000 12,000 235,000
Employee 20 25,000 6,500 3,150 9,650
Employee 35 40,000 6,500 2,250 8,750
Employee 55 60,000 6,500 2,580 9,080
Total 265,480
% to Owner 89 %
Target Market
Small business owners with few or no employees
Looking for larger tax deductions. Income in excess of 200,000 dollars Maxed out SEP clients
Thank you