Retirement Plans

Business owners of pass-through entities in any type of profession, who have incomes below a specified threshold ($157,500 single filer/$315,000 married filing jointly).

However, if you are a business owner of a pass-through entity that is not a specified service firm (Doctors, Attorneys, Financial Advisors etc.) and your income is above the threshold, you deduction may be limited or completely eliminated. If you fall in that trap, what can you do to get that 20% deduction? The following example will illustrate the concept.

Tax Liability Before Planning: $126,379
Tax Liability after planning:     $46,179
Tax Savings:         $80,120

Details: 

You are a doctor, attorney or a financial professional. You are married filing jointly. Your 2018 qualified business income is expected to be $500,000. You have no other income, deductions or credits for simplicity. Your taxes will be calculated as follows.

Qualified Business Income (QBI): $500,000
Taxable Income: $500,000
20% Deduction: $0 (Because QBI is above the threshold)
Your federal tax: $126,379

You may be eligible for establishing a retirement plan and contribute $200,000 in that plan. If you do, your 2018 tax situation will be as follows.

Qualified Business Income (QBI): $500,000
Retirement Plan Contribution: $200,000
20% Deduction: $60,000 (20% of $300,000)
Taxable Income: $240,000 ($500,000 - $200,000 - $60,000)
Your federal tax: $46,179

Your taxes will be reduced from $126,379 to only $46,179.
Tax Saving of $80,200

You don’t even have to contribute in your retirement plan until 2019 but you must establish your retirement plan NOW. There are strict IRS deadlines for establishing such a plan.

Some of the 401k contributions are subjected to Social Security and Medicare taxes. None of the Defined Benefit Plan contributions made by corporations are subjected to Social Security and Medicare taxes. Social Security and Medicare taxes are taxed at the rate of 15.3%. This could result in tax saving of as much as $2,754 ($18,000 x 0.153) for people under 50 years of age and $3,672 ($24,000 x 0.153) for people 50 and older.

There are many different types of defined benefit plans, such as

-Traditional DB Plan.
-419e3 plan
-Cash Balance Plan

You can deduct $200,000, $300,000 or even more with such plans. You can also combine them with your regular 401k to get even larger deduction.

What type of plan do you have now? A good retirement plan should provide you a comfortable retirement for tomorrow as well as provide for tax advantages and other benefits like protection from creditors today. When was the last time you had your retirement plan reviewed?

For complimentary retirement plan review, contact us.

Ask yourself the following questions:

-  Am I receiving the maximum benefit from my annual plan contribution?
-  Is there a way to increase my plan contribution for my benefit while decreasing contributions for my employees?
-  Do I have the ability to reward staff differently based on their importance to my company?
-  Is my plan’s design right for me and my company?

If your answer to any of these questions is “No” or “I don’t know”, you owe it to yourself to obtain a NO COST Retirement Plan Review. Contact us.

What is Retirement Plan Review?

A Retirement Plan Review is a thorough analysis of your current pension plan with the twofold goal of increasing your share of annual contribution and reducing your plan’s administrative expenses. Once review is complete, you will receive formal plan recommendation which is customized to meet your goals. Along with the Pension Protection Act combined with the New Tax Law dramatically increases the benefits available to owners and top executives like you. After completing your review, if we find that your current plan is the best available, at least you have the peace of mind knowing this fact and didn’t cost you a dime.

Let’s get started with your future today!