Designed exclusively for high-income Small Business Owners and Sole Proprietor's benefit.
Designed exclusively for high-income Small Business Owners and Sole Proprietor's benefit.
Using IRS sanctioned programs, we are able to provide relief for a rather small group of Sole Proprietors and Small Business Owners who have been able to create an income for themselves that is considerably higher than their peers. As such, are now exposed to exorbitant income taxes and in doing so have delayed funding a desirable retirement program designed exclusively for themselves.
These folks are typically Personal Service Corporations.
Typical Clients
1. CPA's
2. Attorney's
3. Doctors/Dentists
4. Consultants
5. Board Directors
6. Architects
7. Authors
8. Athletes
9. Farmers
10. Public Speakers
Any employer can
adopt the 412(e)(3) Plan,
including: Sole proprietors, C Corporations, S
Corporations, Partnerships, Limited Liability
Companies, and Family Limited Partnerships. It
is best suited for the owner of a small business
or professional enterprise looking to maximize
current tax deductions and secure a large
amount of retirement funds. The 412(e)(3)
Plan is an excellent option for single employee
businesses, maximizing tax-deductible
contributions and minimizing W2 income.
The 412(e)(3) Plan
is a defined benefit
retirement pension
plan guaranteed with insurance
company life and annuity contracts.
Introduced in 1974, it is also referred
to as a “Fully Insured Defined Benefit
Plan”. Unlike traditional defined
benefit plans,
the 412(e)(3) Plan takes the risk out of retirement investing. Funds are guaranteed by insurance
company contracts, avoiding the ups and downs
of the stock market. The Plan can never suffer any
losses or be under-funded. It provides the largest
tax deductions of any qualified retirement plan
– you can invest more and accumulate more for
retirement. 412(e)(3) permits employers to “fast
fund” a retirement program for an older employee
without increasing costs for younger employees.
Plans must be funded each year, but you can
design the 412(e)(3) Plan with a contribution
rate at the level you are comfortable with.
Contributions to the Plan may be as much as 3
times that of a traditional defined benefit plan and
6 times more than a defined contribution plan.
The 412(e)(3) Plan provides maximum
flexibility for exit strategies, including roll over
into an IRA, lump sum distributions and guaranteed
monthly income, while providing maximum
security for retirement. The Plan is protected
from creditor claims and can be amended or
terminated to accommodate changing family
or business needs.
Employer contributions
to the 412(e)(3) Plan are tax
deductible, employee benefits are tax deferred
and all accumulations grow tax-free. If a company
already has a 401(k) plan in place, it can retain the
employee contributions to that plan and still adopt
the 412(e)(3) Plan. The participant may elect to
continue the permanent life insurance benefit after
retirement. With proper planning, death benefits
may not be subject to estate tax.
The above represents CJA’s opinion regarding
the 412(e)(3) Plan and is not intended as legal or
tax advice regarding the treatment of any particular
employer’s contributions to its plan or the
treatment of benefits provided to the employees
of any particular employer. A taxpayer should
consult its independent tax or legal advisor before
adopting its own 412(e)(3) Plan.
A qualified retirement plan meets requirements of the Internal Revenue Code and as a result comes with tax advantages and security unavailable in other strategies. All plan contributions are tax-deductible, grow tax-deferred and are protected from creditors. These tax benefits make qualified plans the most efficient place to save money for retirement.
The Tax Cut and Jobs Act of 2017
Section 199A of The Tax Cut and Jobs Act of 2017 provides a new 20 % deduction of qualified business income for certain pass-through businesses.
Pass-through entities include:
• Sole proprietorships (no entity, Schedule C)
• Real estate investors (no entity, Schedule E)
• Disregarded entities (single member LLCs)
• Multi-member LLCs
• Any entity taxed as an S corporation
• Trusts and estates, REITs and qualified cooperatives
However, personal service businesses lose this deduction when their taxable income exceeds the following thresholds:
For 2024, the income threshold for single and married individuals to lose their 199A deduction is $182,100 and $364,200 respectively. The threshold for the 20% deduction for qualified pass-through income is $191,950 for single taxpayers and $383,900 for married taxpayers filing jointly.
Section 199A service businesses include the following:
• CPA’s
• Attorneys
• Athletes
• Brokers and Agents
• Doctors and Dentists
• Consultants
• Performing Arts
The deduction provided by a large, qualified plan contribution can bring taxable income below the phase-out threshold in high earning service entities thereby regaining the 20% deduction in addition to the deduction for the qualified plan contribution.
What is the 2024 Defined Benefit Plan Set Up Deadline?
This is the latest date you can set up a defined benefit plan. For a calendar year plan, it is 8.5 months after the plan year. The plan must be funded before you file your 2024 tax return if you want to deduct it for 2024 tax purposes.
Under the old rules you were required to have the plan set up by the end of the plan year. This is normally December 31st. But thanks to the SECURE Act, things have changed.
The SECURE Act essentially extended the date a plan can be set up. For you to take advantage of a plan, you must establish a plan by the date you file your taxes, including extensions.
Set Up Deadline & Funding Deadline.
Up to the date tax return is filed.
DOL & IRS require by September 15th.
Will also include extensions.
Up to the date tax return is filed (latest Sept 15th) Must have time to open account. Can be made monthly or quarterly Rule change allows late set up. Must be accrued on tax return
For an S corporation that follows a calendar year, meaning you close your books by December 31st, you have until March 15th to set up and fund the plan. A six-month extension can be added for you to file by September 15th.
But remember that the plan also has to be funded by that deadline. So, the set up should actually occur well in advance of that date. You must fund the plan before filing your tax returns.