The business:
A third generation, successful farming operation (an S-corp) is owned by a husband and wife (ages 57 & 55) and employs the 3 children full time. “Seasonal” part time 1099 employees are hired during the harvest. The company had a small qualified retirement plan in place which did not offer the parents much opportunity to make large income tax deductible contributions. Farming revenue has been steadily increasing while available operational tax deductions have been shrinking.
Need:
The parents were sensitive to the increased income tax rates and shrinking business tax deductions. They desired an immediate solution which would provide larger income tax deductible contributions to a qualified retirement plan, and their long term goals were to reduce their work schedule and transition the farming operation to the children over the next 5 to 7 years. Finally, the purchase of life insurance was important for two reasons – 1) to address estate planning needs, and 2) to insure a smooth transition to the children in case of a pre-mature death of one or both parents.
The PensionQuote Inc. Solution:
The FA, with the assistance of the Insured Solutions Consultant and PensionQuote, presented a Split Funded Defined Benefit Plan as follows:
| Total 401(k) & Profit Sharing for Parents: | $79,800 |
| Total Split Funded Defined Benefit for Parents: | $470,000 |
| Required contribution for the Children/Employees: | $0 |
| Total Farm Tax Deductible Contribution: | $549,800 |
- In a 45% tax bracket, the $549,800 total contribution represents a tax savings of $247,410 each year for at least 5 years.
- The plan provided each Parent with approximately $1.7 million of cash value whole life insurance. The two life insurance policies are assets inside the defined benefit plan with total target premiums of $211,500.
- In addition to the life insurance sale, the FA will receive at least $338,300 of new managed assets each year for the life of the plan.
For more information on Split Funded Defined Benefit Plans, please call your Insured Solutions Consultant or the PensionQuote Team:
Disclosure: PensionQuote and its representatives do not provide tax, accounting or legal advice, and 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 own independent tax and legal advisors as to any accounting or legal statements herein before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.