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Defined Benefit Plans and Tax Advantages

Defined Benefit Plans and Tax Advantages. Defined Benefit Plan. 412(e)(3) or Fully Insured Plan 430(d) or Classic Defined Benefit Plan Cash Balance Plan Combination Plans. Upgrade from New Comparability to Cash Balance Combination Plan.

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Defined Benefit Plans and Tax Advantages

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  1. Defined Benefit Plans and Tax Advantages

  2. Defined Benefit Plan • 412(e)(3) or Fully Insured Plan • 430(d) or Classic Defined Benefit Plan • Cash Balance Plan • Combination Plans

  3. Upgrade from New Comparability to Cash Balance Combination Plan • Larger companies may already have a new comp plan in place and the owners are looking to increase their contribution levels • A Cash Balance-401(k) combination plan may be an alternative • May produce higher contribution levels for owners with little increase to employee cost

  4. Upgrade from New Comparability to Cash Balance Combination Plan Salary DASH CB Combo • Owner 1 55 $260,00057,500 224,234 • Owner 3 45 $260,00057,500 137,453 • HCE 1 45 $150,000 7,500 10,583 • HCE 2 40 $125,000 6,250 8,813 • MGR 1 45 $ 75,000 3,750 5,291 • MGR 2 40 $ 65,000 3,250 4,583 • MGR 3 40 $ 55,000 2,750 3,878 • EMP 1 35 $ 50,000 2,500 17,332 • EMP 2 35 $ 35,000 1,750 12,132 • EMP 3 30 $ 35,000 1,750 12,112

  5. Upgrade from New Comparability to Cash Balance Combination Plan

  6. Tax Savings in a 40% Bracket • $436,410 is fully deductible • 40% tax rate • $174,564 tax liability • $74,724 employee cost • $99,840 net tax savings

  7. What is a “FULLY INSURED” Plan? • 412(e)(3) Defined Benefit plan, old 412(i). • Insurance Contract Defined Benefit Plan • One insurance company • Contract Requirements • Guaranteed level premiums • Guaranteed cash accrues “ratably” • No loans or assignments

  8. “FULLY INSURED” Advantages • Maximum current tax deduction • No market risk • No complex “funding” limitations • Accrued benefit is equal to contract cash value • Enhanced survivor benefits

  9. Fully Insured PlanLifetime Lump Sum Limit

  10. Fully Insured PlanLifetime Lump Sum Limit

  11. Insurance Analysis55 year old$3,847,453 Death Benefit • $110,651 – Pension Customizer Whole Life • May be paid up in 30 years age 85 • $78,911 – Security XLC • Pay to 115 • $14,734 – 20 year Level Term • Coverage ends at age 75 • After tax dollars or pre tax dollars • $44,298 in 42% tax bracket $25,693

  12. Insurance Analysis55 year old$3,847,453 Death Benefit • $110,651 – Premium • $875,334 – Cash value at retirement • $1,480,027 – Annuity balance • $2,355,361 - Total retirement

  13. Getting a Design Study Complete a Retirement Plan Fact Finder FAX to Plan Design Team: 607.772.6726

  14. Important Factors Who’s there? What do they have now? What’s their budget? Do they want Life Insurance?

  15. SML Advanced Marketing Support Plan Consultation Agent Client & CPA Life Insurance Products & Service SAI Plan Documents Plan Administration Tax Reporting Advanced Plan Design Super Comp. DB & 412(e)(3) Conversions Cash Balance Plans We Do it All!

  16. Resources

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