September-October 2016

Issue link:

Contents of this Issue


Page 29 of 43

he Pension Protection Act of 2006 (PPA) changed the landscape of qualified plan designs. It is unquestionably the best piece of retirement planning legislation for business owners in decades from a contributory, regulatory and fiduciary perspective. The Super 401(k) Plan is a term that messages potentially the best qualified plan design possible under the PPA changes. A Super 401(k) Plan combines the use of Cash Balance Plans, 401(k) plan, Profit Sharing Plan (PSP), and the not well-known 401(h) Plan. Contributions to a Super 401(k) Plan can average 3X to 20X more savings than the stand-alone 401(k)/Profit Sharing limits. Just as significantly, the percentage of the plan contribution for business owners can exceed 90% of total contributions. Annual Super 401(k) Plan contributions can easily reach or exceed $250,000 to $500,000+, and under the right set of facts and circumstances, over $1 million annually. The "Cushion" Beginning in the second plan year, the contribution maximum can increase by a formula that will add an estimated 25% to 50% of the otherwise maximum contributions which accelerates the maximum accumulation of funds in the shortest period. The "Double-Up" Super 401(k) Plan Contributions can double in the first tax year. According to IRC §404(a)(6); the plan year contributions that are subsequent to the double-up will be approximately 60% of the double-up. The Super 401(k) plans are advanced, customized plan designs. A CPA called about his client's business whose owner was set to take home $900,000 as flow through income. The CPA had exhausted the traditional deductions available. The business owner's company managed to save taxes by utilizing the Super 401(k) Plan Design. The client had a traditional Safe Harbor 401(k) plan, which the business owner and his wife participated. To better understand the way that the Super 401K works, you must begin with educating the business owners of their options to reduce their tax liability. In this case, the client needed a more sophisticated design to create a legally discriminatory plan that would help the owners deduct significantly more money on their behalf. The reason most employers do not have sophisticated qualified plan designs is because most plan providers do not offer them. They simply administer cookie cutter plans, commonly known as adoption agreements. It is all about knowing the rules and having a creative customized plan design to meet the owner's objectives. It is INSURANCE T By Dan Dougherty, ChFC Super: Illustration: 30 PalletCentral • September-October 2016 The 401k Design Design

Articles in this issue

Links on this page

view archives of palletcentral - September-October 2016