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for everyone I'm Steve savant syndicated financial columnist and bunny color commentator on today's show a benefit focus defined benefit plan part 5 in our series on tax efficient retirement planning for business owners with nationally recognized author speaker and retirement authority Peter Hibbert welcome to the fourth fifth segment Peter we're looking at these books again on your website yeah which is you can see down at our lower third the red zone of retirement I like this book because it's consumer oriented yes it's easy to read yes not hard and it talks about this red zone which could be the danger zone in retirement right Peter quantifies it as five years before your retirement date and ten years after so if you say Steve I need this book just hop out to their site and they'll take care of you right there on amazon.com he co-authored he has a chapter in here with the famous sales guru Brian Tracy the success blueprint that's on amazon.com some of the things we've talked about are in that chapter that you wrote right and then of course the last book with Jack Canfield mr. soup is yeah and he has the road to success you also have a chapter in this book and again we're talking about leverage and things of this nature now we're gonna do another area I have to say this Steve savant may be a little ignorant on here because this is a almost a proprietary packaging of a product idea so let's talk about this because I think when I think about regular focus defined benefit plans I think of defined benefit I have it in my head you're putting these adjectives in front of it so what do you mean by when you talk about focused what does that do well what we trying to do is a contrast regular defined benefit plans in the world of the retirement plans are built broken into two types defined contribution you define how much you put into the plan you don't know what your benefits going to be defined benefit plans in other hand you define the benefit and then actually we work backwards to today how much do you have to put in to have enough in the pot to get that guaranteed benefit defined benefit plans have kind of gone by the wayside of major companies but they're coming back and small businesses because it gives them the largest deduction that you can have under the tax code for qualified plans but what we want to do is we've taken a little bit farther we've broken defined benefit plans into two can or benefit lump-sum focus plans where you're building a lot of money in this defined benefit plan but you're all only gonna maybe cancel that plan terminate it and roll the money to an IRA in a benefit focus plan we're focused solely on benefits we don't intend to ever cancel the plan terminate the plan to roll the money to our IRA IRA we're going to keep it there so that there's a lifetime income that the business owner and their spouse can never outlive and when we do that we also create a much larger tax deduction because we're adding some additional benefits that are not traditional defined benefit plans we're actually adding a day pre-retirement death benefit and a post-retirement death benefit in addition to creating a pot of money for the retirement income so by adding these additional benefits that most actuaries aren't trained on gives us a lot of leverage and you have to do your you have your own actuaries in-house they'd have to do this yeah and the one I for the benefit focus plan here I use a consoling actuary out of Pittsburgh named Charlie who's he was designing retirement plans back in the 50s and 60s he knows a lot of the old rules that are still on the books so so he has a unique perspective perspective and training that most actuaries don't get understand one thing though because you are bringing up an area I usually thought hey defined benefit plans hey they're going to be rolled over eventually to some IRA right and that's what you're saying no we're holding this because it has additional ancillary benefits yes is there more benefits than the death benefit itself yes sir additional significant more than the death benefits now there here's an example here this is what you traditionally went to any any pension consulting or advisor wants to bring a defined benefit plan to you we usually we usually do two plans most people don't understand that but businesses can install more than one retirement plan they could install multiple retirement plans and so in this case we're going to install a 401k plan profit sharing plan and your maximum contribution of that is fifty six thousand five hundred if you're maxing out your contribution to that plan and then if you and I'm focusing only on these age sixty sixty-five folks because it's less of a deduction if you're younger but at that age you could also have a defined benefit plan putting another two hundred thousand dollars into the plan for a total of two hundred sixty eight which will save you over a hundred seven thousand dollars in tax that's a very nice tax deduction but like the story of Paula Lisa when they came to me said I needed a larger deduction alright so if we go to the next page you'll see what we do we get rid of the defined benefit plan so we take the 401k plan and they add the benefit focus plan and look at the duction we have here rather than 212 we can actually create a tax deduction of eight hundred ninety thousand okay how can that be let me let me just let me I'm trying to think of my audience yeah they're probably saying I love it how can that be because we got to create now two pots of money we have to create a pot of money that is sufficient to pay an income and sufficient to pay it almost a two million dollar death benefit and this is the post retirement pre and post three and pre and post retirement you have to have a lot of money in the plan play these benefits that's that's not even talked about adding some additional but benefits maybe down the road like post retirement medical and those sorts of things which could be in this plan which could be in this plan later on you know including maybe long term care no long term care I noticed when you said yes it's it's this is is this age determinant yeah I noticed that this you're getting more money because your timeline is shorter yeah Wow yeah but look at here forty-five year old we could put in almost three hundred eighty thousand in addition to what he's put in the 401k and obviously the difference between these numbers is the catch-up contribution when you hit age fifty but look at the kind of even a 35 year old on get one hundred thirty six thousand we're in a traditional DB plan I could only get fifty eight thousand so by adding these being benefit focus focused on the benefits what it could do for you and this is not talking about the estate there's a succession or in or the income tax benefits so this is just on the contributions okay so when I'm adding these ancillary benefits to it the code supports this kind of high deduction these are serious jump from 212 to eight nine yeah I mean you're people that are between six and sixty five they may be in their prime earning years yes I mean you're heading into retirement this is your Golden Ears you've been making more money in the last five ten years this is a huge time to look at this now but what I haven't is what I haven't talked about here is most business owners want to know look what happens if I have a bad year so when we price this out we show them the maximum the minimum we the minimum on that case might have been he could drop to a hundred thousand rather than eight ninety so we give them goalposts that they can deal with in terms of their contributions a low and a high one so in his system may I ask in a situation like this is that was that the highest based on his to twelve adding okay what was the low threshold then movie to say yeah that bad year no maybe eighty maybe hundred grand okay so the spread is pretty substantial I mean to twelve two hundred grand right that's pretty big okay so he he hasn't out or at least a reduced out that's a reduced out but he's got another out retirement plans you possess as a business owner the power of the pen to amend the plan to change the benefit for me to bring these contributions down power would pen to terminate the plan mmm there's nothing that mandates that you have to keep a plan in place okay know that you can't change them but it's usually did a debate with defined benefit plans you have to stick it out and until I'm done and whether I make money or not I got funded but you're saying there's flexibility here there's very much flex there's a lot of flexibility that most people don't understand hmm so okay so in your traditional defined benefit plan with a death benefit focused ancillary benefit do most of your clients like the idea that the death benefits in there is that death benefit then because is it in a qualified plan is that taxable it does it is not how did that happen let me tell you how about it well each year we report you the only downside of this thing it's a very minor downside is that since we got a text rien 'ti providing a death benefit to you there's a value to that that the IRS determines and so we have to report the economic benefit of that so this individual may have to report a thousand two thousand dollars of income that here to get an eight hundred nine tax deduction based upon the economic benefit the value of that death benefit so this one has a quantitative in front of the IRS right that's like getting some kind of extra benefit in a revenue you know they're getting income and but but you're saying a couple grand yeah a couple three grand I think I'll pay it yeah yeah okay so in your defined benefit are you when you approach people with this are they they they like the ability to get a deduction going from two thousand eight ninety because not only is it the death benefit income tax free but it's also a state tax rate because this is why one of the very unique things about this is our documents that are approved by the IRS any retirement plan you've ever been familiar with or any of our clients have ever been familiar with you have to fill out a beneficiary reform don't you you can't fill out a beneficiary form in this plan the beneficiary arrangements are hardwired into the plan that documents in the event of death under ERISA you have to offer the spouse death benefit right we expect that most of our business owner clients that the spouse will disclaim that because guess who the second beneficiary is under the plan documents trust no trust established by that so the death side of chief so if the spouse disclaims let's assume it's a female she disclaims then the trustee then has to go to the second beneficiary and if there's a trust there then we have the money paid in the trust and that's now outside the estate of both and there's no transfer cost from the plan even to the trust right now if the client fails to set up a trust guess what's next children and then the fourth is the estate but if we do our proper planning we're we're gonna have a disclaimer more likely not it's gonna go to the trust so we have an income tax free benefit and an estate tax benefit okay so so the only real bit of castor oil that I have to take is this economic benefit tax which did not sound like a lot a couple grand couple three grand you get in your seventies it might be five to ten grandmas so it's a little more significant but in terms of the benefit you've got it's it's peanuts are you allowed to use a second to die to live someone contractors yes is the economic benefit lower then yes okay so so when you look at this how many people I'm just curious do they choose the single life case or do they choose two people on one contract which most of them have been single life we've done a few hmm yeah and we can actually make the deduction larger that by using a different IR s table 74 307 it allows us to have a larger death benefit but it's just assuming a standard death if it has to be reasonable under the tang are using the same life insurance chassis yes no we're using whole life about it on this one yeah this one [Music] depending upon the point listen I want to thank Peter for sharing the series under the efficient retirement plan for business owners and keep in mind before moving forward any ideas on shell all we check with your taxes old legal counsel or your financial advisor give it extensive odds money [Music]