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Consultant running a 1 person firm
Small Business Owner running a 1 - 5 person company
University Professor with a second income
Senior Executive - serving on several boards
Spouse - self-employed, able to save his or her entire salary
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Here are a few examples of how the Small Business Pension Program was appropriate for specific clients |
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Consultant running a 1 person firm
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Tom is a Consulting Engineer, age 57, and is incorporated. With only five years left before retirement at age 62, he wants to significantly increase his contributions to a retirement plan so that he will be able to maintain his current lifestyle in retirement.
Averaging $232,000 W-2 income for the past decade, the actuary determines that Tom can contribute as much as $190,057 in 2006 to his Small Business Pension Program. He will be required to continue making similar contributions annually until retirement. With his existing SEP plan, Tom can only contribute $44,000. At the 40% marginal rate, with his SEP plan, Tom saves only $17,600 on combined Federal and State income taxes in 2006. But with a Small Business Pension Program, Tom could save $76,023 on his income taxes in 2006.
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Small Business Owner running a 1 - 5 person company |
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Rita has built up a thriving Public Relations practice over the years. Today, the business which is incorporated, employs three others. Rita is age 50 while her employees are much younger: age 25, earning $26,000, age 34, earning $30,000, and age 38, earning $26,000. Rita's W-2 income averaged $220,000 annually over the past three years.
With the Small Business Pension Program, the actuary determines her maximum contribution for 2006 would be $129,470 for herself plus $15,155 for employees for a total of $144,625. If Rita's employees were older, the contributions required for them would be higher. With her existing SEP Plan, she could contribute $16,400 for her employees and $44,000 for herself. Total tax savings for 2006 at a combined State and Federal tax rate of 40% would be over $57,850 with a Small Business Pension Program compared to $24,160 for the existing SEP plan.
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University Professor with a second income
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Walter teaches in the University Business School and also has income from an independent consulting practice. He contributes the maximum to his 403(b) retirement plan at the University but wants to retire with more retirement assets that he can accumulate in the 403(b) plan. At age 56 he doesn't have much time to build significant retirement wealth. His consulting income has been at least $80,000 after self-employment tax for the past five years. He would like to contribute as much of his $80,000 annual consulting income as possible to a retirement plan. With the Small Business Pension Program, his 2006 contribution could be as high as $80,000. 2006 tax savings at the combined Federal and State tax rate of 40% would be over $32,000.
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Note:
In all cases, taxes are due upon distribution. The scenarios described above are examples of situations where the Small Business Pension Program was appropriate for specific clients. The Small Business Pension Program is not appropriate for all clients. Prior to establishing the plan, clients should make sure they will have the income necessary and are comfortable with making a commitment to fund the defined benefit plan annually as required by the IRS. They should review the plan with their tax or legal professional prior to setting it up. |
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