a tax strategy for individuals with self-employment income and small business owners defined benefit...

A Tax Strategy for Individualswith Self-Employment Income and

Small Business Owners

Defined Benefit Plansfor Small Business Owners

Copyright 2014 Dedicated Defined Benefit Services LLC Presentation for CPAs

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Defined Benefit Plans ─ in the News

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

High-Income Clients Save More With These Underutilized Retirement Plans “From a short-term standpoint, there’s absolutely nothing that can equal this for me or anyone older with excess income and big taxes...” Financial Advisor Magazine, December 2011

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 2012

Copyright 2014 Dedicated Defined Benefit Services LLC

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Today’s Presenter

Advisor Name & photo Affiliation with CE

sponsor (DBBS) Expertise Connection to audience

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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


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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


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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 $210,000 per year (for 2014)

Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal

Plan can be amended to change the goal


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Recent Legislation Favors Small DB Plans

2000 - Repeal of IRC Section 415(e) gave highly compensated individuals the 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 $210,000 in 2014)

2006 - Pension Protection Act Increases flexibility – Integrate with a single person 401(k)– Increase contribution in early “windfall” years


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A Growing Market:High Income, Self-employed Clients Age 40+

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.


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Retirement Plans for the “Micro-Market”Closing a Gap in Product Offerings

Hypothetical Example: Maximum annual contribution limits in 2014 for a business owner age 52, earning $300,000 W-2 income annually, retiring in 10 years

Assumes 5-7% funding rate for Defined Benefit Plans

Defined Benefit (DB) Plans May Allow Clients to Contribute Significantly more Earned Income than other Retirement Plans


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OnePersonPlus from Dedicated DBA Great Tax Strategy for Clients Age

40+ Prospects

– Small Business Owner, age 40+– Owner + up to 4 employees – Expect to Contribute 5 successive years

New Plans– Avg. annual contributions: $120,000*– Avg. term: 8+ 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

* Based on 2013 first year contributions to Dedicated Defined Benefit Services DB plans.


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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.OnePersonPlus.com


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Owner-Only, Sole proprietor

Annual earnings: $450,000 Maximum DB+ 401(k) contribution for 2014: $221,600

Contribution to DB Plan: $183,000

Contribution to 401(k): $38,600 Annual tax savings: $84,200

Combined marginal tax rate of 38% DB Accumulation at age 62: $2.54 Million

10 years, 5 - 7% rate of return Annual DB Benefit: $210,000

Dr. Charles, Owner-only, Age 52Wants Maximum Tax Deduction


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The Impact of Age on Contribution: The Older, The Better

Doctor Charles Age 52 10 Years to Retirement Compensation:

$450,000 DB Contribution:

$183,000 Annual Benefit at

Retirement: $210,000

Doctor Tim

Age 35 27 Years to Retirement Compensation:

$450,000 DB Contribution:

$72,700 Annual Benefit at

Retirement: $210,000


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Paul, Age 60, Mary, Age 58 5 years from retirement W-2 Income: $520,000 ($260,000 each) Total annual DB contribution: $426,800

$208,400 towards Paul’s retirement

$218,400 towards Mary’s retirement

Annual combined income tax savings: $162,100 Accumulation at retirement:

Paul: $1.18 Million

Mary: $1.24 Million

*Assumes 38% combined state/federal marginal rate

Married Business Partners, No Employees


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C-Corp, +2 Employees

Owner’s W-2 income: $400,000Employee 1 age 28 earning $35,000Employee 2 age 35 earning $45,000

2014 Maximum DB contribution for owner: $206,200DB Contribution for Employee 1: $6,900DB Contribution for Employee 2: $12,60092% of contribution for Mollie

Annual income tax savings for Mollie: $78,300* Retirement accumulation for Mollie at 62: $1.78 Million

*Assumes 38% combined state/federal marginal rate

Mollie, Age 55, Dentist


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Sole Proprietor, Side Income,

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 2014: $120,000 Annual tax savings: $45,600

combined marginal tax rate of 38% DB Accumulation at age 62: $854,200

6 years, 5 - 7% rate of return

* High 3-year average, after payment of self-employment taxes

Walter, Age 56, Professor


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Eligible Compensation for a DB Plan


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Identify ideal clients for defined benefit plans

• Typical Client Profiles• Continuing Ed Training

Reach out to prospects• White papers• Client Brochures• Quick or custom proposals to show

estimated contribution and tax savings

Working Together to Meet the Needs of Your Clients


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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.


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Fees

Defined Benefit Plan DB Plan Set up: $1250 for one person plan

– $250 per additional participant DB Annual Administration: $1950 for one person plan

(includes Form 5500, Schedule SB, and AFTAP filings)– $150 per additional participant

OR

Defined Benefit & 401(k) Plans Set up: $1450 for one person plan

– $250 per additional participant Annual Administration: $2500 for one person plan

(includes Form 5500, Schedule SB, and AFTAP filings)– $150 per additional participant


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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


a tax strategy for individuals with self-employment income and small business owners defined benefit...

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