Monthly Archives: January 2017

Could You Create Your Own Pension Plan?

Could You Create Your Own Pension Plan?

SBOs are taking a new look at old-school defined benefit plans.

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By GREG OLIVER

Contrary to popular belief, classic pension plans have not disappeared. Corporations have mostly jettisoned them, but highly profitable small businesses are giving them a second look. Why are small business owners deciding to adopt old-school, employer-funded retirement plans?

The tax breaks attached to a defined benefit plan may be substantial. In fact, if these plans are funded with insurance contracts or guaranteed insurance products, plan contributions made by the owner become tax-deductible for the business.1

There is no cap on how much you can save. IRAs, 401(k)s, and SEPs all have annual contribution limits. Traditional employer-funded pension plans do not. Business owners have the potential to accumulate millions for the future through such a vehicle.

For the record, the IRS does limit the yearly retirement income that a participant in a defined benefit plan may receive. In 2017, the pension benefit resulting from such a plan may not exceed a) $215,000 or b) 100% of the participant’s average compensation across his or her three highest-paid consecutive years of service.2

If you are earning well into six figures and you are 45 or older, you may have entered the “sweet spot” when it comes to defined benefit plans. You will presumably be in your peak earning years, and yet you may need to accelerate retirement savings. A defined benefit plan offers you the possibility to do just that.

What are the downsides? Cost and complexity. Actuaries have to be involved (and paid) when you have one of these plans; you need an actuary to perform regular and annual calculations and valuations to see that the plan is being properly funded. In addition, the pension benefits need to be insured through the federal government’s Pension Benefit Guaranty Corporation (PBGC), and in exchange for that service, the business must pay the PBGC annual premiums.2,3

An actuary must determine the annual employer contribution amount needed to fund the plan (typically adjusted yearly in light of investment performance) and the actuarial formula used to make contributions per worker. The business must fund the plan annually, regardless of how well it is doing.4

What businesses are bad candidates for defined benefit plans? If you have a small firm with ten or more employees, or if most of your employees are older or high-salaried, these plans may be a poor choice. That is because the employer contributions could be very expensive, even if you opt for vesting.1,3,4

What businesses are good candidates? Accounting, consulting, and medical practices are often good fits for these plans; seeing how many baby boomers have elected to continue working as consultants, you may see interest rising in them during the coming years.1,3,4

GREG OLIVER USA 0970709[70979[7979[79[070709000
Citations.
1 - investopedia.com/terms/1/412i.asp [12/20/16]
2 – irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits [10/28/16]
3 – cfo.com/retirement-plans/2016/03/weighty-new-conundrum-pension-plan-sponsors/ [3/31/16]
4 – us.axa.com/axa-products/retirement-planning/articles/understanding-defined-benefit-plans.html [10/16]

PLUS FOR YOU…..Amazing other BREAKTHROUGH SHOWS YOU HOW TO HAVE HUNDREDS or THOUSANDS of EXTRA DOLLARS EACH YEAR in YOUR RETIREMENT!

NO FEES! NO HIDDEN EXPENSES! NO GIMMICKS!

Your deadline is April 18, 2017

Your deadline is April 18, 2017.1

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IRS ALERT !!!!!

2016 may be over, but you can still make your 2016 IRA contribution! Your deadline is April 18, 2017.1

You can put up to $5,500 into your IRA for the year 2016. If you were 50 or older in 2016, the limit is $6,500. Those limits are for total IRA contributions – so if you have multiple IRAs, that is the maximum you may contribute to all of them for 2016.2

Make sure you make your 2016 contribution by the deadline! Call, text, or email us – we can help you arrange it with one convenient appointment.

Yours truly,

GREG OLIVER

«RepresentativeDisclosure»
1 – irs.gov/retirement-plans/ira-year-end-reminders [12/8/16]
2 – foxbusiness.com/markets/2016/12/22/ira-contribution-limits-in-2017.html [12/22/16]