News is spreading that law makers are looking to reduce contribution limits on 401(k) plans. If this occurs you can expect a resurgence in Define Benefits Plans. The following is an article which I am re-posting which highlights how one can fully fund retirement in 10 years.
Your small business clients are faced with the increasing likelihood
of higher taxes in 2013 and beyond; those aiming to reduce the slope of
the fiscal cliff next year will want to take a closer look at the
benefits of a defined benefit plan.
While most small business owners create defined contribution plans to
save for retirement, the defined benefit plan allows for considerably
higher annual contributions. Because taxpayers are permitted to
contribute up to $200,000 for 2012 and $205,000 in 2013, the defined
benefit plan presents a planning opportunity that may be too good for
many of your small business clients to pass up. Contribution limits this
high can allow them to completely fund their retirement accounts in
under a decade—all with pre-tax dollars.
Defined Benefit Plan Basics
The defined benefit plan is essentially a retirement
plan that provides for a fixed monthly retirement benefit, which is
usually based on a percentage of the client’s current income.
The fixed benefit level will help the client determine how much he
should add to the plan each year, but the primary advantage of the
defined benefit plan is that the client can put away upwards of $200,000
a year for 2012 and $205,000 for 2013. The contribution levels for
these plans are determined based on the client’s age; therefore, the
anticipated length of time before he will retire.
While the generous contribution limit alone can provide the small
business owner with a powerful incentive to create a defined benefit
plan, with all eyes focused on today’s fiscal cliff negotiations, these
plans become even more attractive. Contributions to a defined benefit
plan can be deducted as an ordinary and necessary business expense to
reduce the taxable income of your client’s small business.
Which Clients Are Right for a DB Plan?
A defined benefit plan is typically best suited for
the client who is able to contribute at least $50,000 annually toward
the plan. Because there are fees and expenses associated with
maintaining the plan, clients wishing to contribute less would be better
off forming a less expensive defined contribution plan. While the
contribution limits for a traditional 401(k) or IRA are much lower
($17,500 plus $5,500 in catch-up contributions for those age 55 and
older in 2013), the defined benefit plan fees can offset the tax
benefits if actual contribution levels are not high enough.
Additionally, because the defined benefit plan nondiscrimination
rules require that the plan be made available to all of the client’s
employees, these types of plans are best suited for clients who have
very few key employees or who run a small family business.
Further, because the defined benefit plan rules require the client to
meet specific funding levels each year, the plans are best suited for
those planning to retire between five and ten years in the future. Once
formed, the defined benefit plan must be maintained for at least five
years before the client can roll the funds over into a traditional
retirement account.
While the defined benefit plan is not the magic solution for every
client, it can provide a unique opportunity for those high-income small
business owners looking to reduce the sting of possible year-end tax
hikes—with the added bonus of creating a substantial retirement nest egg
in just a few years.
Source article: Fully Funded Retirement in 10 Years: A DB Plan for Now
Crew Capital Management Thoughts on Investment
Welcome to the Crew Capital Management Thoughts on Investment blog. At Crew Capital, investment education is key to how we work with our clients. We hope our conversation and analysis entice you to think further on your investment strategies and planning. For further discussion, please contact us at rjung@crewcapital.com
Thank you!
Robert F. Jung, CFA CPA*
*CPA inactve
Thank you!
Robert F. Jung, CFA CPA*
*CPA inactve
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Crew Capital enters into a new client relationship only after it provides and obtains certain information. In addition, Crew Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Every prospective Crew Capital client is provided with a copy of Crew Capital ’s Privacy Policy, Form ADV Part II and Form ADV Part II Schedule F. Also, the USA Patriot Act, passed in response to the events of September 11, 2001, requires certain financial service providers to request specific information from clients. Accordingly, Crew Capital acts to verify a potential client's identity and makes a risk assessment of their financial and business activities. Lastly, Crew Capital will not provide any investment advice or supervision without a fully executed Investment Advisory Agreement.
As a registered investment adviser, Crew Capital is required by rule to adopt and enforce a code of ethics that establishes the standards of conduct expected of all employees and reflects our fiduciary duties. A copy of Crew Capital’s Ethics Policy will be provided to any client or prospective client upon request.
Nothing on this web site shall be construed as advice to any particular investment need or investor. All references regarding investment or portfolio returns are based on historical data. One should not assume that this performance will continue in the future as past performance or results are not an indication of future performance or results.
Certain portions of Crew Capital’s web site (i.e. books, newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, Crew Capital’s (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or substitute for, personalized advice from Crew Capital or from any other investment professional. Crew Capital is neither an attorney nor accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.
At certain places on this site, live "links" to other Internet addresses may be accessed. Such external Internet addresses contain information created, published, maintained, and otherwise posted by institutions or organizations independent of Crew Capital. Crew Capital does not endorse, approve, certify, or control these external Internet addresses and does not guarantee or assume responsibility for the accuracy, completeness, efficacy, timeliness, or correct sequencing of information located at such addresses. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference therein to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by Crew Capital.
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