A Tax Strategy for High Income Self-Employed and Small Businesses Owners Defined Benefit Plans for Small Business Owners

A Tax Strategy for High Income Self-Employed and Small Businesses Owners

Defined Benefit Plansfor Small Business Owners

Copyright 2008 Dedicated Defined Benefit Services LLC

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Defined Benefit Plans ─ in the News

“Benefits in a Pension for Now and Beyond”

“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

“High contribution limits and tax benefits are big pluses for DB plans”

Investment Advisor Magazine October 2007

November 2007

“Creating a pension plan helps business owners and the self-employed sock away more tax-deferred cash for retirement”

Smart Money, October, 2008


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Today’s Presenter

Advisor Name & photo Affiliation with CE sponsor

(DBBS) Expertise Connection to audience

Replace with your photo


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Agenda

Return of the Small Business DB Plan– Defined Benefit Plans At a Glance– Regulatory Changes– Market Opportunity– Compared to other Retirement Plans– The OnePersonPlus® Program from Dedicated DB

Ideal Clients

Meeting the Needs of Your Clients– Presenting to your client– Fees– Key Dates– Opening a DB Plan– Follow through


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Defined Benefit Plans at a Glance

Qualified retirement plans Retirement age is typically 62 or older Contributions are tax deductible Highest available contributions and

tax deductions of any qualified retirement plan


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DB 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 $185,000 per year (for 2008)

Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal

Plan can be amended to change the goal


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Recent Legislation Favors Small DB Plans

2000 - Repeal of IRC Section 415(e) gave highly compensated individuals opportunity to open and fully fund a DB even if they had accumulated $millions in defined contribution plans

2001 – EGTRRA lowered retirement age from 65 to 62 and increased retirement benefit from $140,000 to $160,000 per year (cost of living increased maximum to $185,000 in 2008)

2006 Pension Protection Act Increases flexibility – Integrate with a single person 401(k)

– Increase contribution in early “windfall” years


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A Growing Market:High Income, Self-employed Baby Boomers

From a pool of 15 million+ self-employed* (incorporated or not)

– 50% of self-employed are 45+– 27% are professionals (management, business, finance)

Approximately 1 million self-employed earn $100,000+*

By 2020: US population age 50 – 75 projected to increase 50%– From 61 million in 2000 To 93 million by 2020

*Sources: Re: Population: Self-Employment in the United States: An Update Monthly Labor Review, July 2004. Income figures derived from 2000 US census data.


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Retirement Plans for the “Micro-Market”Closing a Gap in Product Offerings

SIMPLE

SEP

Single 401(k)

DB

DB + 401(k)

Maximum Annual Contribution Limits in 2008 for a Business Owner Age 52, Earning $230,000 Annually, Retiring in 10 Years

$46,000$46,000

$167,900

Assumes 5-7% funding rate for Defined Benefit Plans

$51,000

$19,900

$133,600


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OnePersonPlus from Dedicated DBA Great Tax Strategy for Baby Boomers!

Prospects• Small Business Owner, 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• Prototype plan documents• Integrates with a solo 401(k)

Dedicated DB’s Service• Easy to open, efficient to administer – 2-page

adoption agreement, online proposal, forms, pre-filled annual census

• Experienced administration• Advisors & CPAs at the center to the relationship


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Dedicated Defined Benefit Services

The leading provider of marketing, sales support & administration services for “micro-market” Defined Benefit plans

Offers an outstanding defined benefit solution to present to self-employed and small business clients

Creates a high-quality experience for financial and tax advisors and their clients -- from pre-sale through administration

Minimizes demand for technical expertise from Advisors & CPAs by providing expert plan consulting and design

Advisor/CPA support • Expertise by phone – 866-269-2706 • Expertise online - www.OnePersonPlusTDA.com


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Dr. Charles, Owner-only, Age 52

Annual earnings: $400,000 Maximum DB+ 401(k) contribution for 2008: $167,900

Contribution to DB Plan: $133,600

Contribution to 401(k): $34,300 Annual tax savings: $63,800

Combined marginal tax rate of 38% DB Accumulation at age 62: $2.2 Million

10 years, 5 - 7% rate of return Annual DB Benefit: $185,000

Sole proprietor, Wants Maximum Tax Deduction


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

Doctor Charles Age 52 10 Years to Retirement Compensation: $400,000 DB Contribution: $133,600 Annual Benefit at

Retirement: $185,000

Doctor Tim Age 38 24 Years to Retirement Compensation: $400,000 DB Contribution: $22,200 Annual Benefit at

Retirement: $185,000


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Management Consultants, C-CorpMarried Couple in Business Together

5 and 7 years from retirement W-2 Income: $460,000 ($230,000 each) Total annual DB contribution: $314,400

$166,200 towards Paul’s retirement

$148,200 towards Mary’s retirement

Annual combined income tax savings: $119,500 Accumulation at retirement:

Paul: $1 Million

Mary: $1.46 Million

Paul, Age 60, Mary, Age 58


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Mollie, Age 55 +2 Employees

Owner’s W-2 income: $400,000

Employee 1 age 28 earning $35,000Employee 2 age 35 earning $45,000

2008 Maximum DB contribution for owner: $158,800

DB Contribution for Employee 1: $4,400

DB Contribution for Employee 2: $8,70092% of contribution for Mollie

Annual income tax savings for Mollie: $60,300* Retirement accumulation for Mollie at 62: $1.6 Million

*Assumes 38% combined state/federal marginal rate

Dentist, C-Corp


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Walter, Age 56, Professor at Biz School

In addition to university salary, Walter has self-employment income from consulting & serving on 2 corporate boards

Annual self-employment earnings: $150,000* Maximum DB contribution for 2008: $150,000 Annual tax savings: $57,000

combined marginal tax rate of 38% DB Accumulation at age 62: $1.2 Million

6 years, 5 - 7% rate of return

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

Wants to Secure Retirement with Side Income, Sole Proprietor


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Eligible Compensation for a DB Plan


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Identify ideal clients for defined benefit plans

• Typical Client Profiles• Continuing Ed Training

Reach out to prospects

• Sales Kit - letters• Client Brochures• Quick or custom proposals to show estimated

contribution and tax savings

Working Together to Meet the Needs of Your Clients


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Key Dates

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

Dedicated DB has a special Quick Adoption process for opening plans through year-end. Clients must sign Adoption Agreement by December 31st and send with a set-up fee to Dedicated DB.

The Investment Account will be opened once the Adoption Agreement is signed.

Account must be funded when taxes are filed but no later than eight and a half months after the end of the fiscal year.


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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)


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Establishing a Plan

1. Contact me to Run a feasibility proposal

2. Introduce and Present Plan to client

• Dedicated DB available on a conference call• Dedicated DB designs plan, calculates contribution number

3. Complete Set-up Questionnaire with Client

• Send signed Questionnaire to Dedicated DB• With Set-up Fee

4. Client signs Adoption Agreement

5. Client opens the investment account

Documents

A Tax Strategy for High Income Self-Employed and Small Businesses Owners Defined Benefit Plans for Small Business Owners