Husband and wife partnership with $300,000 of income

Bill and Jennifer are both age 53 and own a successful partnership with $300,000 of net income in 2016 with no W-2 employees. Bill works as a W-2 employee with another company and maxes out their 401k by making the $24,000 contribution. Jennifer only works for the partnership.

Prior to 2016 they had funded a Solo 401k, but they wanted to increase their annual contributions so the solution was to setup a combination 401k and profit sharing plan with a fully insured defined benefit plan. They were able to make a 2016 contribution of $192,313.

Here is the math for Bill - ($3,478 profit sharing plan) + ($0 into the 401k because he already maxed it out with another employer) + $80,687 for the annuity in the defined benefit plan.

Here is the math for Jennifer – ($3,478 for the profit sharing plan) + ($24,000 for the 401k) + $80,688 for the annuity in the defined benefit plan.

Bill and Jennifer liked this solution because it satisfied several goals:

  1. They were able to aggressively save for retirement with a 2016 contribution of $192,313.
  2. They were able to get a $192,313 tax deduction. Based on a 33% marginal tax bracket this saved them $63,463 in federal taxes.
  3. Based on annual contributions to the defined benefit plan of $80,687 for Bill and $80,688 for Jennifer, the minimum guaranteed value combined in their annuities at retirement age 62 on November 1st, 2024 is $1,478,048.
  4. In addition they will have the value of their 401k and profit sharing plan. In 2016 $30,956 can be made into the 401k and profit sharing plan. Annual contribution limits in the 401k and profit sharing plan 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 $1,478,048 guaranteed minimum in their annuities in the defined benefit plan at retirement at age 62.

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Need Help or Advice?

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

If you would like to receive a free defined benefit plan proposal or have questions and need advice contact us. Beacon Capital Management Advisors is registered in all 50 States and is an Accredited Business of the Better Business Bureau since 2004. FINRA’s BrokerCheck.

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