Mark Benefit Plan Made Easy

Digi sign benefit plan

the defined benefit plan generate 200 000 plus tax deductions in a year hi this is adam bergman iri financial please subscribe to my channel like this video and leave a comment or question if you wish also don't forget to click the bell below to receive automatic notifications of new videos so what is a defined benefit plan in general a db plan guarantees a specific benefit at retirement to each eligible employee whereas a 401k or defined contribution plan does not have a specified retirement benefit db plans are based on actuarial analysis and based on the age of the owner and the amount of annual contribution the business owner wishes to make contributions are not discretionary but are determined by an actuary and create an actual founding obligation to the plan once the retirement benefit objective is established the employer contributions required to meet the benefit objective is determined actually on an annual basis the primary benefit of establishing a db plan is the high annual contribution limits which are based on numerous factors including age and income a cash balance plan is the most popular type of dbe plan in general the annual benefits for a participant under a db plan cannot exceed the lesser of 230 000 for 2020 adjusted for some cost of living adjustments or 285 000 which is 100 of the highest consecutive three year average compensation it's based on years of total service with an employer minimum ten years there's no age adjustment the importance of the 450 limit is it will cap the amount of contributions one can make through a db plan however there are some ways to increase that amount whether it's through a combo 401k or profit sharing plan unlike a 401k plan these hypothetical accounts are then used to determine the benefit the eligible employee will receive at retirement also unlike 401k plans increases and decreases in the actual value of the plan's investment are the responsibility of the employer and do not directly impact the benefits amount promised to participants how do you calculate the db plan contributions well a db pension plan uses a formula to figure the benefit amount earned usually it involves salary and years of service for example a certain percentage of the employee's final or average salary multiplied by the number of years of service or a flat benefit amount per year of service do actual dollar amount will depend on such factors as age at retirement earnings and years of service under the plan and all this is determined and designed by an actuary what are the advantages of establishing a dv plan for your business well huge deductions and the ability to supercharge retirement savings almost four times the amount of a 401k plan two primary advantages again high annual contributions which can go up to 280 285 000 for 2020 and the ability to grow those contributions through the power of tax deferral which albert einstein coined the eighth wonder of the world so how does it work how does the defined benefit plan work because a db plan requires the work of an actuary to determine the amount of plan contributions required for retirement benefit funding is somewhat more complex and costly than a 401k plan in general the db plan benefits are funded over the working life of the participating employee with annual tax deductible contributions for the employer the employee does not make any contributions to the plan instead the employer makes all contributions based on predetermined retirement benefits as outlined in the plan documents and as determined by an actuary the assets of the db plan are held in a pool rather than individual accounts for each employee and as a result the employees have generally no say in any investment decisions once established the employer must continue to fund the db plan even if the company has insufficient income or profits in the year so should i set up a db plan well three things to consider number one your individual financial position it's important that the business is in a good financial position steady cash flow and good profits why because when you establish a db plan it's generally a three to five year relationship or promise to make contributions on behalf of yourself and all employees for at least three to five years age of owners matters for small businesses younger owners with startup businesses may want to look to a 401k or solo plan versus a db plan whereas an employer or small business from 1 to 15 employees between the age of 45 and 65 could generate significant tax benefits with a db plan why the older you are the more an actuary will determine that you have catch-up opportunities and the more you'll be able to contribute to a retirement db plan and then third age of employees the age of the company's workforce can impact the type of retirement plan the business seeks to adopt for example an employer with a workforce that consists of mostly older employees would likely not want to consider a db plan why because there'll be higher costs for the employer to satisfy the employee db contribution responsibilities whereas a situation where you have a small business with older owners and a small number of younger employees would be an ideal situation for a db plan so is a db plan right for me well you need a business you got to have good cash flow good profit you should expect three to five year commitment one to ten employees is the sweet spot older owners younger employees your goal should be to generate high annual tax deductions super charge your retirement savings and the db plan is the king of all retirement plans if you can get into a db plan you want to use it you can supercharge your retirement wealth you can put away a whole lot of money and why is that important to put a whole lot of money away in a year and twofold number one high tax actions high tax deductions mean you pay less tax because those deductions reduce your taxable liability number two more money in retirement plan the more money you'll have because it grows tax deferred and tax-deferred income is the way to do it so all in all a db plan is the best way to save for retirement if you are eligible and you can satisfy the requirements of being a small business older owners younger employees or no employees you should work with a tax firm like ira financial or pension investors to set up your plan and who has the expertise to plan design and help you work with an actuary to design the most efficient and effective retirement plan for you and your business hi thanks for watching the video i hope you enjoyed it definitely subscribe to this channel if you'd like to learn more about self-directed retirement accounts there'll be weekly updates also if you have questions comments just leave them below and i'll make sure to get back to you as soon as i can thanks so much