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The attached outlines the CPE workshop we can host on our Combined Qualified Plan to help address the tax planning needs of HNW business owners and professionals. Our firm designs, administers (DC/DB), and implements funding for clients who want large tax deductible contributions that can total hundreds of thousands of dollars per participant and can immediately reduce quarterly estimates. Also with the inclusion of our Aggregated Benefit (PRIME - Post Retirement Individual Medical Expense Benefit) as authorized under IRC §401(h) we can get an additional 33% more to the maximum pension contribution. Our plans designed with PRIME is used to fund for Healthcare in post-retirement one of the many unique attributes of our plans. All plan designs are approved by the IRS through submission for favorable letters of determination and controlled by pension law in accordance with the Pension Protection Act of 2006 and the extensive body of regulations that have since followed...We welcome an opportunity to host a CPE workshop. Thank you.
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COMBINED QUALIFIED PENSION PLAN
CONCURRENT OFFSET, AGGREGATED BENEFITS & POST RETIREMENT
MEDICAL BENEFITS UNDER IRC §401(H)
FINEX WEALTH MANAGEMENT, INC.
BARRY M. FINESENIOR FINANCIAL ADVISOR
FINEX WEALTH MANAGEMENT, INC.1201 Broadway, Suite 803
New York, NY 10001631.513.8822
An Independent Advanced Financial Strategies, Inc. Group Affiliate
*****
Tax Planning Tips
o If needed, double the otherwise maximum tax deduction for 2013
o Excess loss carry back or carry forward.
o IRC § 404(a)(6) allows a cash basis tax payer to set-up Combined Plans and/or add-on plan, now in 2013, and double the otherwise maximum contribution/tax deduction, as long as, the plan is funded on a timely basis.
COMBINED QUALIFIED PLANS
THE PURPOSE OF THIS PRESENTATION
o TO FAMILIARIZE YOU WITH COMBINED PLANS AS AUTHORIZED BY THE PENSION PROTECTION ACT (PPA) OF 2006
o TO GROW AND PROTECT CLIENT ASSETS
o THE MAXIMUM TAX DEDUCTIBLE CONTRIBUTIONS ALLOWABLE FOR OWNERS WITH THE LOWEST POSSIBLE PLAN COST(S)
o ALL OF THE CREDITOR PROTECTIONS AFFORDED QUALIFIED PLANS UNDER FEDERAL LAW AND STATE LAWS i.e. 2005 BAPCPA*
*Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
TO GIVE YOU A COMPETITIVE ADVANTAGE
THE “GOLDEN RULES”OF PLAN DESIGN
THERE ARE 3 MAIN “GOLDEN RULES”
MEETS THE CLIENT’S OBJECTIVES
MAKE SURE THE PLAN IS COST EFFECTIVE
MAKE IT EASY TO UNDERSTAND
WHAT IS THE BEST STARTING POINT FOR A PLAN DESIGN?
MAXIMIZE OWNER BENEFITS - MINIMIZE PLAN COSTS
THE COMBINED QUALIFED PLAN FIVE CONTRIBUTION COMPONENTS
1. The 401(k) Plan2. The Profit Sharing Plan
25% of eligible compensation ($255,000 in 2013) 6% of eligible compensation (service entities <25 participants)
3. The Pension Plan IRC § 412(e)(3), Traditional or Cash Balance
4. The Aggregated Benefit IRC §401(h)/Life Ins.
ALL CAN BE FUNDED 100%
2013 Estimated Maximum Contributions*
Age 401k only 401k P/S Combined Qualified Plan
60-65 $23,000 $56,500 $300,000 - $450,000
55-59 $23,000 $56,500 $250,000 - $325,000
50-54 $23,000 $56,500 $200,000 - $275,000
45-49 $17,500 $51,000 $150,000 - $225,000
40-44 $17,500 $51,000 $125,000 - $200,000
* Inclusive of spousal benefits where applicable
ALL CAN BE FUNDED 100%
* §1.401(a)(26)-5(a)(2); 401(a)(26) = Minimum Participation Requirements** the 40%/50 employee rule in 401(a)(26)
CROSS TESTING, CONCURRENT OFFSETS & AGGREGATED INCIDENTAL BENEFITS
Keys to Max Contributions & Min Plan Costs
The Key to the Combination Plan Designs is doing it in a non-discriminatory manner while satisfying IRC Sec 401(a)(26).
Cross Testing one plan with another establishes that the benefits at retirement from both plans are essentially “equal in value” at the plan’s NRD.
Satisfying the Concurrent Offset Rules* allows us to create a “targeted employees only plan”. We can count participants for testing who are fully offset on a non-discriminatory basis.**
Aggregated Incidental Benefits allow us to increase the maximum pension contribution up to 133% of the otherwise maximum contribution. The AIB is a $$$ benefit that can be individually allocated as a 401h benefit, a life insurance benefit or a combination of the two at the discretion of the participant.
* §1.401(a)(26)-5(a)(2); 401(a)(26) = Minimum Participation Requirements** the 40%/50 employee rule in 401(a)(26)
CASH BALANCE PLAN FUNDAMENTALS
o It looks like an old fashioned savings account
o Accounts are credited with:
o Employer Annual Contribution Credit e.g. $1,000o Annual Interest Credit e.g. 5% = $50
o The Retirement Value is a Lump Sum, the Cash Balance!
o For Example, $1,000/ Year @ 5% over 40 years = $126,190
o Benefits are more easily understood by the participant
o Participant receives an annual statement that shows an account balance
o Costs are Understandable by the Plan Sponsor
IRC § 401(h) FUNDS NOT USED FOR BENEFITS REVERT TO THE COMPANY
WHAT IS IRC §401h “PRIME” or LIFE INSURANCE Aggregated Benefit ?
• THE POST RETIREMENT INDIVIDUAL MEDICAL EXPENSE BENEFIT
• PRIME BENEFITS ARE AUTHORIZED UNDER IRC §401(h)
A 401(h) account is a separate fund, or account, of a pension plan to be used exclusivelyfor retiree health benefits.
401(h) benefits are tax deductible subject to Final Regs Sec.404(a)(3)(f)(2); fully tax deferred and payouts are tax free under IRC Sec. 105 or 106.
401(h) tax deductible contributions, as allocated, are subject to the annual addition limit for Key Employees and HCEs ($50,000 in 2013)
401(h) benefits vest at the NRD for employees who go on pay status; employee/participants leaving prior to NRD forfeit 100% of their benefit
SUPPLEMENTAL BENEFIT FULLY FUNDED BY TAX DEFERRALS
WHAT IS THE TAX RESERVE?
The Tax Reserve is the net A/T tax benefit produced by the tax deductibility of a qualified retirement plan contribution less A/T plan costs.
For example: a plan contribution of $100,000 @ a 40% tax bracket reduces current tax by $40,000; if the plan has $10,000 in A/T EE and admin costs, the Tax Reserve equals $30,000.
The Tax Reserve is a reserve set aside to fund any future tax liability when plan assets are paid out and to supplement retirement income.
The Tax Reserve utilizes the tax characteristics of life insurance to make it the ideal repository for Tax Reserve contributions:
Tax free withdrawals & loans converted to incomeTax free income to beneficiariesTax free life insurance benefits to fund any business, personal or charitable intent
Concurrent Offset Method & Aggregated Benefits Utilized in Proformas
Annual Compliance Testing and Government Reporting
Monitoring of Qualification requirements (§401).
Contribution deductibility calculations (§404).
Minimum Participation and Coverage testing (§410)
Monitoring of Minimum Vesting Standards (§411).
Monitor compliance with Definitions and Special Rules (§414)
Annual addition of benefits and allocations testing (§415).
Top heavy testing (§416).
ADP/ACP testing (applicable to 401(k) plans).
Preparation of DOL/IRS Form 5500 and related schedules.
Preparation of Summary Annual Report for participants.
Preparation of appropriate PBGC form (for defined benefit plans only).
The GATEWAY CONTRIBUTION @ 7.5% DOES TRIPLE DUTY, it covers the:
Profit Sharing Safe Harbor
Top Heavy Safe Harbor
The Gateway @ 7.5%
WHO SHOULD CONSIDER Immediate 2013 Tax Benefits A COMBINED QUALIFIED PLAN DESIGN
Owners/professionals seeking a higher contribution/tax deduction than the traditional 401k profit sharing maximum of $50,000 ($55,500 with Catch-up).
Highly profitable companies of all types and sizes.
Successful family businesses and closely-held businesses.
CPA and law firms, medical groups and professional firms.
Older owners who need to squeeze 20 years of retirement saving into 5 to 10 years.
Owners/partners looking for a way to fund a buy-sell or stock redemption agreement on a tax deductible basis.
Wealthy owners and professionals with charitable giving intentions stymied by the limitations on tax deductibility.
ABOUT FINEX WEALTH MANAGEMENT, INC.
o FWM is an independent, fee based third party administrator providing consulting, design and administrative services to plan sponsors and their advisors across the United States.
o FWM partners with RIA’s, Agencies, Independent Advisors and sells any form of investment or insurance product and renders investment advice.
o FWM members have over 40 years of experience in financial services, plan benefits and administrative services.
o FWM plan designs are actuarially certified and come with IRS favorable letter of determination.
o FWM provides comprehensive legal documentation, trust accounting, recordkeeping, benefit statements, plan reporting and governmental filings.
BARRY M. FINESENIOR FINANCIAL ADVISOR
FINEX WEALTH MANAGEMENT, INC.1201 Broadway, Suite 803
New York, NY 10001631.513.8822
An Independent Advanced Financial Strategies, Inc. Group Affiliate*****
