Privately Held Family Company

Situation:

A husband and wife (ages 63 and 62) have a successful business which employs 14 staff, inclusive of a son and daughter (ages 36 and 38). The clients and the children have been making maximum contributions to a 401(k)/profit sharing plan. Recently, the client have begun discussing retiring in 5 years and passing the company to the son and daughter. Additionally, the need for increased income tax deduction was raised by the client’s CPA.

Situation:

A husband and wife (ages 63 and 62) have a successful business which employs 14 staff, inclusive of a son and daughter (ages 36 and 38). The clients and the children have been making maximum contributions to a 401(k)/profit sharing plan. Recently, the client have begun discussing retiring in 5 years and passing the company to the son and daughter. Additionally, the need for increased income tax deduction was raised by the client’s CPA.

Need:

While the clients were eager to retire, they realized that they had taken much of the company profits and invested it back into the business. Furthermore, they had depleted much of their savings by funding the educations for their children.
The owners desired to contribute about $600,000 per year, PRE-TAX, for the next 5 years, to a custom pension plan. The plan needed to address three concerns: 1) quickly accumulate retirement income, 2) contributions had to be income tax deductible, and 3) the plan needed to include life insurance as one of the assets in order to protect the wealth transfer. If the three concerns could be addressed, the company could pass to the children effectively and the clients would have sufficient income for retirement.

Solution:

The client’s financial advisor and PensionQuote, presented a Split Funded Defined Benefit Plan:

• In a 45% tax bracket, the $641,000 represented an annual tax savings of about $289,000with the clients realizing about 94% of the total contribution.
• The plan provided the husband and wife with the life insurance they desired – approximately $1.5 million of death benefit.