Optimized account mix for max tax deferral

[adam_mx]

I've spent many hours researching online and this seems like the most knowledgeable forum around for retirement account issues.

- age 33, want to retire at 55

- sole owner of a consulting biz/LLC earning 300k/year for the next 5 years at least, taxed as S corp, no employees

- may join another totally separate company next year as full time employee (wouldn't impact consulting biz) and would be eligible for their 401k plan

If the goal is maximum tax efficiency, what's the best combination of accounts to achieve this? From what I've read I believe it's a combination of solo 401k + DB plan. How would the #s work on that, assuming the first year DB contribution was something like 40k? Do I need to pay myself 100% of comp in salary (versus distribution) in order to max out? I talked to a couple different CPAs and got differing answers, one said that the two accounts are aggregated together in terms of contribution limits and the other disagreed; it's clear that even very qualified people are confused by some of this material.

[Andy the Actuary]

Confusion in your matter not generally an issue among very qualified people in pension design involving defined benefit plans which generally excludes CPAs. Retain an actuary to maximize and protect your deduction.

[ESOP Guy]

A couple of observations:

1) I appreciate anyone who tried to be active and knowledgeable in their own financial situations. So I respect the idea you have been doing your own research. However, you might have reached the practical limits of it in this area.

2) There are a lot of very complex things that can happen here which require specialized knowledge. I would echo if you think a solo DB plan is a good idea you need to find an TPA with an actuary to run some projections for you.

3) One of the things that could trip you up is the amount you can put defer into a 401(k) plan is a personal limit. So if you work for a company that has a 401(k) plan and you defer there it could limit you deferral into the solo 401(k) plan. It won't limit a Employer Discretionary contribution into the solo 401(k) plan however,

#3 above is a simple example of the type of thing a good TPA with an actuary could guide you through. in the set up process.

I don't normally recommend some stranger spend their money on this board but in your case a little up front spending could result in a lot of value in terms of making good vs bad plans going forward.