Business Owners: How to Cut Your 2014 Tax Bill by $38,000
By Peter C. Thoms, CFA
Founder, Orion Capital Management LLC
Check out our Tax Savings Analyzer & Defined Benefit Plan Fact Sheet
Business owners and high-income independent professionals have powerful tax-saving options available to them that others simply do not. While most business owners are aware of Individual 401(k) Plans and SEP-IRAs, these plans have much lower contribution limits than a little-known but very powerful IRS-approved qualified retirement savings plan called a Defined Benefit Plan.
As the chart above indicates, the nest-egg building and tax-savings potential of Defined Benefit Plans dwarfs that of either Individual 401(k)s or SEP-IRAs.
* For a 52-year-old earning $300,000. 2014 plan maximum contribution limits include a “catch-up” contribution of $5,500 for 401(k).
By opening and funding a small business defined benefit plan, a business owner or independent professional in the right circumstances can make annual tax-deductible contributions to the plan in excess of $100,000 and thereby save $38,000 or more in taxes each year.
Don’t Delay! The deadline for establishing a defined benefit plan to save on 2014 taxes is December 31.
Do you (or does someone you know) fit this profile?
- Self-employed or small business owner with up to five employees
- 40 years of age or older
- Willing and able to contribute at least $60,000 annually to a qualified retirement plan and continue this level of funding for at least 3 years
If you currently have an Individual 401(k) or a SEP-IRA and would like to make higher contributions than those plans allow, a defined benefit plan may work for your situation.
Defined benefit plans enable the self-employed to build a large retirement nest egg in a very short amount of time. Defined benefit plan owners can accumulate as much as $1,000,000 to $2,000,000 in a tax-deferred retirement account in just 5-10 years. Once a defined benefit plan is funded to the (approximate) IRS limit of $2.45 million, the plan assets can simply be rolled into a regular IRA.
Here is a list of the typical professions of people who have defined benefit plans:
- Architects
- Attorneys
- Consultants
- Contractors
- Independent Corporate Directors
- Dentists
- Doctors
- Entrepreneurs
- Graphic Designers
- Independent Insurance Agents
- Manufacturer’s Reps
- Mortgage Brokers
- Real Estate Agents
- Software Developers
DB plans enjoy several powerful features.
- Highest allowable contributions to a qualified plan–$100,000+ (much higher than the contribution limits on SEP-IRAs and 401(k)s.
- Annual tax savings of $38,000 or more
- Investments grow tax-deferred, building wealth faster
- Tax-free rollover to an IRA at retirement (or plan termination)
- Flexible range of investment choices
Defined benefit plans are not appropriate for everyone, but for those in the right circumstances they can provide large tax savings and a very fast way to “catch-up” on amassing a substantial retirement nest egg.
Complimentary Tax Savings Analysis
To see how much you might be able to save in 2014 taxes by establishing a defined benefit plan before December 31, 2014, please visit us online using the link below. Just enter your information and we will generate a complimentary tax savings proposal for you and deliver it directly to your inbox.
Tax Savings Analyzer & Defined Benefit Plan Fact Sheet
Peter C. Thoms, CFA
Orion Capital Management LLC
1330 Orange Ave. Suite 302
Coronado, CA 92118
Tel: 619.435.1701
Email: [email protected]
Website: www.orionportfolios.com
About the Author:
Peter C. Thoms, CFA, is the founder and managing member of Orion Capital Management LLC, an independent Registered Investment Advisor based in Coronado, California. The firm focuses on managing global investment accounts for institutional and private clients.
Disclosure:
This document is for informational purposes only. Nothing in this report is to be construed as a specific investment recommendation. This document does not constitute the provision of investment advice, which is only provided by Orion Capital Management LLC under a written investment advisory agreement and only in states in which Orion Capital Management LLC is registered or is exempt from registration requirements. Orion is not a tax advisor and does not provide tax advice. For tax advice individuals should consult their CPA.
