Defined Benefit Plans for Medical Professionals A Tax
Defined Benefit Plans for Medical Professionals A Tax Strategy for High Income Self-Employed and Small Practice Owners
Defined Benefit Plans ─ in the News “Creating a pension plan helps business owners and the self-employed sock away more tax-deferred cash for retirement” Smart Money, October, 2008 “Create Your Own Pension Plan: Classic retirement plans are an intriguing option for shielding small-business income from the IRS” Fortune Small Business, February 2008 “Benefits in a Pension for Now and Beyond” November 2007 “High contribution limits and tax benefits are big pluses for DB plans” Investment Advisor Magazine October 2007 2 Copyright 2009 Dedicated Defined Benefit Services LLC
Today’s Presenter Replace with your photo § § Advisor Name & photo Affiliation Expertise Connection to audience 3 Copyright 2009 Dedicated Defined Benefit Services LLC
Agenda § The Personal Pension Plan – Defined Benefit Plans At a Glance – Compared to Other Retirement Plans – The One. Person. Plus® Program from Dedicated DB § Ideal Financial Situations § Meeting Your Needs – – – Eligible Compensation Key Dates Fees Opening a DB Plan Follow through 4 Copyright 2009 Dedicated Defined Benefit Services LLC
Defined Benefit Plans at a Glance § Qualified retirement plan approved by the IRS § Contributions are tax deductible § Highest available contributions and tax deductions of any qualified retirement plan § Contributions are based on: – your age – income – years to retirement 5 Copyright 2009 Dedicated Defined Benefit Services LLC
Comparison of Retirement Plans SIMPLE SEP Single 401(k) $21, 350 $49, 000 $54, 500 $134, 600 DB $171, 300 DB + 401(k) Hypothetical Example: Maximum annual contribution limits in 2009 for a Medical Professional age 52, earning $245, 000 annually, retiring in 10 years Assumes 5 -7% funding rate for Defined Benefit Plans 6 Copyright 2009 Dedicated Defined Benefit Services LLC
Defined Benefit Plans are Goal-oriented § Goal or “benefit” represents the amount of retirement wealth the plan will provide annually at retirement age § Benefit is established when plans are opened – Based on age, income and years until retirement – Capped at $195, 000 per year (for 2009) § Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal § Retirement age is typically set at age 62 or older § Plan can be amended to change the goal 7 Copyright 2009 Dedicated Defined Benefit Services LLC
One. Person. Plus from Dedicated DB A Great Tax Strategy for Baby Boomers! § Typical Plan Sponsors • Medical professionals, age 45 -70 • Owner + up to 4 employees • Expect to Contribute 5 successive years § New Plans • Avg. annual contributions: $120, 000 • Avg. term: 9+ years • Integrates with a solo 401(k) § Dedicated DB’s Service • Prototype plan documents eliminates cost of actuary, tax attorney • Easy to open, efficient to administer – 2 -page adoption agreement, simplified forms, pre -filled annual census • Set up fee and annual administration fee • No administration fees based on size of your account § You and Your Financial Advisor Select the Investments 8 Copyright 2009 Dedicated Defined Benefit Services LLC
Dr. Charles, Owner-only, Age 52 Sole proprietor, Wants Maximum Tax Deduction § Annual earnings: $400, 000 § Maximum DB+ 401(k) contribution for 2009: $171, 300 – Contribution to DB Plan: $134, 600 – Contribution to 401(k): $36, 700 § Annual tax savings: $65, 100 – Combined marginal tax rate of 38% § DB Accumulation at age 62: $2. 36 Million – 10 years, 5 - 7% rate of return § Annual DB Benefit: $195, 000 9 Copyright 2009 Dedicated Defined Benefit Services LLC
The Impact of Age on Contribution: The Older, The Better Doctor Charles § Age 52 § 10 Years to Retirement § Compensation: $400, 000 § DB Contribution: $134, 600 § Annual Benefit at Retirement: $195, 000 Doctor Tim § Age 35 § 27 Years to Retirement § Compensation: $400, 000 § DB Contribution: $16, 200 § Annual Benefit at Retirement: $195, 000 10 Copyright 2009 Dedicated Defined Benefit Services LLC
Paul, Age 60, Mary, Age 58 Anesthesiologists, C-Corp Married Couple in Business Together § § § 5 years from retirement W-2 Income: $490, 000 ($245, 000 each) Total annual DB contribution: $351, 800 $171, 800 towards Paul’s retirement $180, 000 towards Mary’s retirement § § Annual combined income tax savings: $133, 700 Accumulation at retirement: Paul: $1. 1 Million Mary: $1. 16 Million 11 Copyright 2009 Dedicated Defined Benefit Services LLC
Mollie, Dentist, Age 55 +2 Employees Dentist, C-Corp § Owner’s W-2 income: $400, 000 Employee 1 age 28 earning $35, 000 Employee 2 age 35 earning $45, 000 § 2009 DB contribution for owner: $162, 400 DB Contribution for Employee 1: $4, 000 DB Contribution for Employee 2: $8, 100 93% of contribution for Mollie § § Annual income tax savings for Mollie: $61, 700* Retirement accumulation for Mollie at 62: $1. 65 Million *Assumes 38% combined state/federal marginal rate 12 Copyright 2009 Dedicated Defined Benefit Services LLC
Walter, Age 60, Professor at Med School Wants to Secure Retirement with Side Income, Sole Proprietor In addition to university salary, Walter has self-employment income from consulting & serving on 2 biotech boards § Annual self-employment earnings: $100, 000* § DB contribution for 2009: $80, 000 § Annual tax savings: $30, 400 combined marginal tax rate of 38% § DB Accumulation at age 65: $513, 600 5 years, 5 - 7% rate of return * High 3 -year average, after payment of self-employment taxes 13 Copyright 2009 Dedicated Defined Benefit Services LLC
Kumar, Age 48, Radiologist, C-Corp Wants high contributions in 2009 but needs flexibility as his income fluctuates § § § 2009 W-2 earnings: $135, 000 Maximum DB contribution for 2009: $51, 800 + 401(k) contribution for 2009: $24, 600 Total deduction in 2009: $76, 400 2009 tax savings: $29, 000 – combined marginal tax rate of 38% § DB Accumulation at age 62: $1, 630, 000 – 14 years, 5 - 7% rate of return § Annual DB Benefit: $135, 000 Copyright 2009 Dedicated Defined Benefit Services LLC
Eligible Compensation for a DB Plan 15 Copyright 2009 Dedicated Defined Benefit Services LLC
Key Dates § DB Plans must be opened by the end of your fiscal year, for most businesses that will be December 31 st. § The Investment Account will be opened once the Adoption Agreement is signed. If you open the plan before year end, we recommend investing no more than 50% of the assets before you have your final year -end income statement. § The investment account must be funded when taxes are filed but no later than eight and a half months after the end of your fiscal year. 16 Copyright 2009 Dedicated Defined Benefit Services LLC
Fees Defined Benefit Plan § DB Plan Set up: $1200 plus $50 per participant § DB Annual Administration: $1600 plus $100 per participant OR Defined Benefit & 401(k) § Plans Set up: $1400 plus $50 per participant (owner and spouse only) § Annual Administration: $2050 plus $200 per participant (owner and spouse only) 17 Copyright 2009 Dedicated Defined Benefit Services LLC
Establishing a Plan 1. We can run a feasibility proposal for you 2. Bring your accountant into the discussion early 3. Once the plan meets your objectives, we’ll complete a Set -up Questionnaire • Send signed Questionnaire to Dedicated DB • With Set-up Fee 4. We’ll send you an Adoption Agreement to sign 5. You can begin to fund the investment account 18 Copyright 2009 Dedicated Defined Benefit Services LLC
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