Opportunity to satisfy clients needs implementing Split Funded Defined Benefit Plans

Situation:

With a $1 million Associate/Staff payroll, the firm was currently spending 6% of payroll funding the profit sharing plan equaling $60,000 ($1 million x 6% = $60,000).

Problem:

The partners were frustrated with their perceived inability to make large income tax deductible contributions with existing plans. Additionally, they were looking for a business growth strategy and the ability to offer competitive employment packages to attract new partners and employees to the firm.

Solutions Utilized:

The FA, with the assistance of the Wealth Planning Specialist and the PensionQuote, Inc. Team, designed and presented a Split Funded Defined Benefit Plan as follows:

Owners increased their income tax deductible contribution from about $200,000 to $700,000 in a combination of their current 401(k)/profit sharing plan plus the addition of a Split Funded Defined Benefit Plan:

Employee payroll cost only increased from 6% to 8.5% (only a $25,000 increase)

• In a 45% tax bracket, the $500,000 increased tax deduction provided an additional $225,000 (45% x $500,000 = $225,000) of dollars working for the partners inside the plan. In other words, the $225,000 check that the partners were prepared to write to the IRS was instead deposited into the plan.
• The plan provided each partner with approximately $2.6 million of whole life insurance. The two life insurance policies are assets inside the defined benefit plan with total premium of $230,000.
• Aside from the life insurance premiums, the FA will receive and manage an additional $270,000 ($500,000 – $230,000 = $270,000) each year (for at least the next 5 years) plus the small increase in employee cost.
• The partners were delighted that the plan could be used as an effective recruiting tool by allowing significant income tax deduction to any new partner.
• Each partner’s particular plan and contributions are fully portable upon leaving the practice or retirement.

Contact your Financial Planning Specialist or a member of the PensionQuote Inc. Team at 1-800-717-4723 to discuss additional plan features.

PensionQuote Inc. and its representatives do not provide tax, accounting or legal advice, are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise). Any tax statements contained herein were not intended or written to be used for the purpose of avoiding U.S. federal, state, or local tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.

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