Professor, Consultant

OBJECTIVE
Reduce total tax liability

PROFILE
Business School Professor, age 56, makes $180,000 in salary from the University, and contributes the maximum to the University’s 403 (b) plan. She also has earned at least $150,000 in sole proprietor income for the past few years from consulting and giving speeches, which puts her in a higher tax bracket. She plans to continue her side work until she is 62, maybe longer. Same as 401(k). In this scenario, it does not affect the DB contribution. But since the professor contributes the maximum to her university’s retirement plan, she cannot open another 401(k) with her consulting income. So, no DB + 401(k) contribution, only DB.

WITH A ONEPERSONPLUS DEFINED BENEFIT PLAN

2020 Contribution:
$135,000

Tax Savings on side income @ 37%*:
$51,000
Potentially lower tax bracket on total income

Projected Accumulation after 6 years:
$980,000

* Assumes estimated 31% federal and 6% state tax rates. This example is based on specific assumptions and is used for illustrative purposes only.

Note: Sheryl may qualify for a new tax deduction (Section 199A) of 20% of her Qualified Business Income, if her annual income is less than $157,500.

Sports Memorabilia Business

Objective
Invest spousal income for retirement

Profile
Married couple with high household income would like to save more for retirement. Wife is a highly paid executive at a public company; husband, Rocky, age 60, has been earning $100,000 (after self-employment taxes) for the past three years in his sports memorabilia business, and plans to keep working for another five years. They don’t need his income for cash flow and want to invest it.

Solution
OnePersonPlus DB Plan starting in 2020

Contribution to DB:
$92,000

Tax Savings@ 37%*:
$34,000

Projected Defined Benefit Accumulation in 5 years:
$461,000

* Assumes estimated 31% federal and 6% state tax rates. This example is based on specific assumptions and is used for illustrative purposes only.

Note: Rocky and his wife may qualify for a new tax deduction (Section 199A) of up to 20% of Rocky’s Qualified Business Income, if their joint income is below the $315,000 threshold for married couples.

Retired Executive Consulting for a Few Years

Objective
Reduce current year taxes and delay Required Minimum Distributions (RMDs)

Profile
Retired executive, age 70, set up an S-corporation for his Board of Directors fees. He pays himself $200,000 in W-2 income on about $400,000 in revenue. He needs to begin taking distributions from his other retirement plans this year, and wants to reduce his tax liability on the current year earnings.

Solution
Defined Benefit Plan for 5 years with a 3-year cliff vesting schedule. No RMDs are required from this plan until 2023.

2020 Defined Benefit Contribution:
$138,600

2020 Tax Savings@ 37%*:
$51,200

Projected Defined Benefit Accumulation in 5 years:
$769,600

* Assumes estimated 31% federal and 6% state tax rates. This example is based on specific assumptions and is used for illustrative purposes only.

Note: James may qualify for a new tax deduction (Section 199A) of 20% of his Qualified Business Income, if his annual income is less than $157,500..