48 year old single orthopedic surgeon with $600,000 of income

Dr Wang is a 48 year old single orthopedic surgeon and makes $600,000 per year after business expenses. He setup his business as an S corporation and paid himself a W-2 of $265,000 in 2016 (the compensation limit used to calculate the defined benefit contributions is 265k). He has no other W-2 employees. Dr Wang’s goal was to maximize his tax deductions. This client didn’t have a need to buy life insurance in the plan. The solution was a combination 401k and profit sharing plan with a fully insured defined benefit plan and he was able to make a 2016 contribution of $188,955.

Here is the math - ($15,900 profit sharing plan) + ($18,000 401k) + $155,055 for the annuity in the defined benefit plan.

Dr Wang liked this solution because it satisfied several goals:

  1. He was able to aggressively save for retirement which is his primary goal with an annual contribution of $188,955 in 2016.
  2. He was able to get a $188,955 tax deduction. Based on a 39.6% marginal tax bracket this saved him $74,826 in federal taxes.
  3. Based on an annual contribution to the defined benefit plan of $155,055, the minimum guaranteed policy value for the annuity at retirement age 62 on November 1st, 2029 is $2,494,272.
  4. In addition he will have the value of the 401k and profit sharing plan. In 2016 $33,900 can be made into the 401k and profit sharing plan. Annual contribution limits can potentially increase with future IRS increases to the contribution limits. The value of the 401k and profit sharing plan at retirement would be determined based on market performance. These values are not guaranteed. The 401k and profit sharing would supplement the $2,494,277 guaranteed minimum in the annuity in the defined benefit plan at retirement at age 62.

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Eric Kuniholm Eric Kuniholm, CPWA®
Certified Private Wealth Advisor®
Beacon Capital Management Advisors

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