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DeltaAir

Over Funded, Single Member DB Plan

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We are advising a client (along with bringing in outside experts) regarding an overfunding of a sole proprietor DB plan. Long story short, the actuarial was unable to accurately anticipate the aggressive nature of our client's investing and currently has a nearly $1mm overfunding situation. The actuarial has suggested that the sole proprietor take "catch up" distributions to eat up the overfunding, however the client has reached out to us to brainstorm some additional options due to income tax impacts. To complicate matters, the business is wrapping up operations within the next year or so and may exist in a "slowed down" state for a number of years beyond. 

I realize the option of a Qualified Replacement Plan (QRP) exists, but I believe that the overfunding amount will remain suspended until used for contributions (which may be impacted because of the lower amount of income). The issue with the suspension is that in the case of untimely death of the sole proprietor, my understanding is that it automatically reverts. 

Beyond that, I have read that using the money for health benefits is possible, but the topic is less popular and murkier based on my limited research. 

Any thoughts or suggestions on avenues to explore? My intent is to have a thorough discussion with the client and "spit ball" ideas in coordination with the actuarial. 

Thanks to all. 

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Financial Planning Consultant for said client. Arguably more of an idea generator with this situation vs. problem solver. 

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"Long story short, the actuarial was unable to accurately anticipate the aggressive nature of our client's investing and currently has a nearly $1mm overfunding situation."

This is my favorite line.  Your client didn't listen to the actuary and it's the actuary's fault.

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i think adding kids/spouses/purchaser of the business (even if asset sale) are my favorite options in this scenario.

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There are IRS penalties for being severely overfunded--I had to terminate my DB plan and wind down the funding, and then rolled it over to an IRA as, even with our conservative assumptions, it became overfunded after 15 years.

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As a general rule I don't respond substantively to posts that refer to an actuary as an actuarial. 

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