A tax strategy for individuals with self employment income and small practice owners
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Defined Benefit Plans for Medical Professionals. A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners. Defined Benefit Plans ─ in the News. “Retro-Pension: Defined-benefit plans for small businesses can help owners catch up on savings”

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A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners

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Defined Benefit Plansfor Medical Professionals

A Tax Strategy for Individuals

with Self-Employment Income and

Small Practice Owners


Defined Benefit Plans ─ in the News

“Retro-Pension: Defined-benefit plans for small businesses

can help owners catch up on savings”

Financial Planning Magazine, February 2011

“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


Advisor Name & photo

Affiliation

Expertise

Connection to audience

Today’s Presenter

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Agenda

  • The Personal Pension Plan

    • Defined Benefit Plans At a Glance

    • Compared to Other Retirement Plans

    • The OnePersonPlus® Program from Dedicated DB

  • Ideal Financial Situations

  • Meeting Your Needs

    • Eligible Compensation

    • Key Dates

    • Fees

    • Opening a DB Plan

    • Follow through


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


Comparison of Retirement Plans

SIMPLE

SEP

Single 401(k)

DB

DB + 401(k)

$21,350

$49,000

$54,500

$147,800

$184,500

Hypothetical Example:

Maximum annual contribution limits in 2011 for a Medical Professional age 52, earning $245,000 annually, retiring in 10 years

Assumes 5-7% funding rate for Defined Benefit Plans


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 2011)

  • 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


OnePersonPlus from Dedicated DBA Great Tax Strategy for Baby Boomers!

  • Typical Plan Sponsors

    • Medical professionals, age 40+

    • Owner + up to 4 employees

    • Expect to Contribute 5 successive years

  • New Plans

    • Avg. annual contributions: $126,500*

    • Avg. term: 8+ 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

  • * Based on 2010 first year contributions to Dedicated Defined Benefit Services DB plans.


Dr. Charles, Owner-only, Age 52

Sole proprietor, Wants Maximum Tax Deduction

  • Annual earnings: $400,000

  • Maximum DB+ 401(k) contribution for 2011:$184,500

    • Contribution to DB Plan: $147,800

    • Contribution to 401(k):$36,700

  • Annual tax savings: $70,100

    • 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


Doctor Charles

Age 52

10 Years to Retirement

Compensation: $400,000

DB Contribution: $147,800

Annual Benefit at Retirement: $195,000

Doctor Tim

Age 35

27 Years to Retirement

Compensation: $400,000

DB Contribution: $20,900

Annual Benefit at Retirement: $195,000

The Impact of Age on Contribution: The Older, The Better


Paul, Age 60, Mary, Age 58

Anesthesiologists, C-CorpMarried Couple in Business Together

  • 5 years from retirement

  • W-2 Income: $490,000($245,000 each)

  • Total annual DB contribution: $374,800

    • $183,000 towards Paul’s retirement

    • $191,800towards Mary’s retirement

  • Annual combined income tax savings: $142,200

  • Accumulation at retirement:

    • Paul: $1.1 Million

    • Mary: $1.16 Million


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

  • 2011 DB contribution for owner: $175,200

    • DB Contribution for Employee 1:$4,500

    • DB Contribution for Employee 2:$8,900

    • 93% of contribution for Mollie

  • Annual income tax savings for Mollie: $66,500*

  • Retirement accumulation for Mollie at 62: $1.65 Million

  • *Assumes 38% combined state/federal marginal rate


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 2011: $80,000

  • Annual tax savings: $30,400

    • combined marginal tax rate of 38%

  • DB Accumulation at age 65: $481,900

    • 5 years, 5 - 7% rate of return

      * High 3-year average, after payment of self-employment taxes


Kumar, Age 48, Radiologist, C-Corp

Wants high contributions in 2011 but needs flexibility as his income fluctuates

  • 2011 W-2 earnings: $135,000

  • Maximum DB contribution for 2011: $58,300

  • + 401(k) contribution for 2011: $24,600

  • Total deduction in 2011: $82,900

  • 2011 tax savings: $31,500

    • combined marginal tax rate of 38%

  • DB Accumulation at age 62: $1.63 Million

    • 14 years, 5 - 7% rate of return

  • Annual DB Benefit: $135,000


Eligible Compensation for a DB Plan


Key Dates

  • DB Plans must be opened by the end of your fiscal year, for most businesses that will be December 31st.

  • 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.


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)


Establishing a Plan

  • We can run a feasibility proposal for you

  • Bring your accountant into the discussion early

  • Once the plan meets your objectives, we’ll complete a Set-up Questionnaire

    • Send signed Questionnaire to Dedicated DB

    • With Set-up Fee

  • We’ll send you an Adoption Agreement to sign

  • You can begin to fund the investment account


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