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A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners

Defined Benefit Plans for Medical Professionals. A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners. Defined Benefit Plans ─ in the News. “Retro-Pension: Defined-benefit plans for small businesses can help owners catch up on savings”

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A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners

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  1. Defined Benefit Plansfor Medical Professionals A Tax Strategy for Individuals with Self-Employment Income and Small Practice Owners

  2. Defined Benefit Plans ─ in the News “Retro-Pension: Defined-benefit plans for small businesses can help owners catch up on savings” Financial Planning Magazine, February 2011 “Creating a pension plan helps business owners and the self-employed sock away more tax-deferred cash for retirement” Smart Money, October, 2008 “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 “Benefits in a Pension for Now and Beyond” November 2007

  3. Advisor Name & photo Affiliation Expertise Connection to audience Today’s Presenter Replace with your photo

  4. Agenda • The Personal Pension Plan • Defined Benefit Plans At a Glance • Compared to Other Retirement Plans • The OnePersonPlus® Program from Dedicated DB • Ideal Financial Situations • Meeting Your Needs • Eligible Compensation • Key Dates • Fees • Opening a DB Plan • Follow through

  5. Defined Benefit Plans at a Glance • Qualified retirement plan approved by the IRS • Contributions are tax deductible • Highest available contributions and tax deductions of any qualified retirement plan • Contributions are based on: • your age • income • years to retirement

  6. Comparison of Retirement Plans SIMPLE SEP Single 401(k) DB DB + 401(k) $21,350 $49,000 $54,500 $147,800 $184,500 Hypothetical Example: Maximum annual contribution limits in 2011 for a Medical Professional age 52, earning $245,000 annually, retiring in 10 years Assumes 5-7% funding rate for Defined Benefit Plans

  7. Defined Benefit 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 $195,000 per year (for 2011) • Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal • Retirement age is typically set at age 62 or older • Plan can be amended to change the goal

  8. OnePersonPlus from Dedicated DBA Great Tax Strategy for Baby Boomers! • Typical Plan Sponsors • Medical professionals, age 40+ • Owner + up to 4 employees • Expect to Contribute 5 successive years • New Plans • Avg. annual contributions: $126,500* • Avg. term: 8+ years • Integrates with a solo 401(k) • Dedicated DB’s Service • Prototype plan documents eliminates cost of actuary, tax attorney • Easy to open, efficient to administer – 2-page adoption agreement, simplified forms, pre-filled annual census • Set up fee and annual administration fee • No administration fees based on size of your account • You and Your Financial Advisor Select the Investments • * Based on 2010 first year contributions to Dedicated Defined Benefit Services DB plans.

  9. Dr. Charles, Owner-only, Age 52 Sole proprietor, Wants Maximum Tax Deduction • Annual earnings: $400,000 • Maximum DB+ 401(k) contribution for 2011:$184,500 • Contribution to DB Plan: $147,800 • Contribution to 401(k):$36,700 • Annual tax savings: $70,100 • Combined marginal tax rate of 38% • DB Accumulation at age 62: $2.36 Million • 10 years, 5 - 7% rate of return • Annual DB Benefit: $195,000

  10. Doctor Charles Age 52 10 Years to Retirement Compensation: $400,000 DB Contribution: $147,800 Annual Benefit at Retirement: $195,000 Doctor Tim Age 35 27 Years to Retirement Compensation: $400,000 DB Contribution: $20,900 Annual Benefit at Retirement: $195,000 The Impact of Age on Contribution: The Older, The Better

  11. Paul, Age 60, Mary, Age 58 Anesthesiologists, C-CorpMarried Couple in Business Together • 5 years from retirement • W-2 Income: $490,000($245,000 each) • Total annual DB contribution: $374,800 • $183,000 towards Paul’s retirement • $191,800towards Mary’s retirement • Annual combined income tax savings: $142,200 • Accumulation at retirement: • Paul: $1.1 Million • Mary: $1.16 Million

  12. Mollie, Dentist, Age 55 +2 Employees Dentist, C-Corp • Owner’s W-2 income: $400,000 • Employee 1 age 28 earning $35,000 • Employee 2 age 35 earning $45,000 • 2011 DB contribution for owner: $175,200 • DB Contribution for Employee 1:$4,500 • DB Contribution for Employee 2:$8,900 • 93% of contribution for Mollie • Annual income tax savings for Mollie: $66,500* • Retirement accumulation for Mollie at 62: $1.65 Million • *Assumes 38% combined state/federal marginal rate

  13. Walter, Age 60, Professor at Med School Wants to Secure Retirement with Side Income, Sole Proprietor In addition to university salary, Walter has self-employment income from consulting & serving on 2 biotech boards • Annual self-employment earnings: $100,000* • DB contribution for 2011: $80,000 • Annual tax savings: $30,400 • combined marginal tax rate of 38% • DB Accumulation at age 65: $481,900 • 5 years, 5 - 7% rate of return * High 3-year average, after payment of self-employment taxes

  14. Kumar, Age 48, Radiologist, C-Corp Wants high contributions in 2011 but needs flexibility as his income fluctuates • 2011 W-2 earnings: $135,000 • Maximum DB contribution for 2011: $58,300 • + 401(k) contribution for 2011: $24,600 • Total deduction in 2011: $82,900 • 2011 tax savings: $31,500 • combined marginal tax rate of 38% • DB Accumulation at age 62: $1.63 Million • 14 years, 5 - 7% rate of return • Annual DB Benefit: $135,000

  15. Eligible Compensation for a DB Plan

  16. Key Dates • DB Plans must be opened by the end of your fiscal year, for most businesses that will be December 31st. • The Investment Account will be opened once the Adoption Agreement is signed. If you open the plan before year end, we recommend investing no more than 50% of the assets before you have your final year-end income statement. • The investment account must be funded when taxes are filed but no later than eight and a half months after the end of your fiscal year.

  17. 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)

  18. Establishing a Plan • We can run a feasibility proposal for you • Bring your accountant into the discussion early • Once the plan meets your objectives, we’ll complete a Set-up Questionnaire • Send signed Questionnaire to Dedicated DB • With Set-up Fee • We’ll send you an Adoption Agreement to sign • You can begin to fund the investment account

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