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SteveK

DB Plan - Conflicting Design - Help

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Hi,
I want to start a DB plan for 2019 and received conflicting advice from 2 TPA firms.  If you could provide clarification or guidance it would be very much appreciated.  Should I be looking elsewhere?

1.  Firm 1 gave a contribution range range of $74k - 390k for 2019
      Firm 2 gave a contribution range of $153k - $167k and said they never saw such a large range for 1st year as it is typically very narrow.

2.  Firm 1 said my existing individual 401k 5500SF would be incorporated into DB 5500 that they will do
      Firm 2 said they cannot be combined into 1 filing.

3.  Both firms have an exiting document with IRS#. I'm guessing that it is somehow customized to meet my needs?

I am 64 and will fund for at least 3 years and possibly 5.
I am only employee and business is S Corp
3 highest consecutive years of W-2 were $120k
I do not intend to take any salary this year or any year going forward
I would like to fund $175k this year and would like flexibility on the downside going forward as not sure what future income will be.

Thank  you for your advice, thoughts and clarification.

Steve

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If you do not intend to take any salary, how will you establish a 3 year high salary while a participant for 415(b) purposes? I'm assuming this a new plan and not an amendment of an existing plan.

We don't typically see such a large range on 1st year either due to various IRS limits. You might want to ask Firm 1 how they are generating such a large range.

As for flexibility understand that DB Plans have required contributions, sometimes whether you want them or not.

 

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The 3 year high salary was from years 2016 - 2018

Yes... this would be a new plan.

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So you would have no salary while a participant. That's problematic.

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Both TPA's had no problem with no salary as the benefit was being funded by past 3 consecutive years of salary and I would be working more than 1000 hours per  year going forward.

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Steve, based on what you have written you can have almost 100% flexibility for the next five years.  Have one of your actuaries call me (my contact information is easily found) and I'll guide them through the process.  It really is trivial.

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Mike,
I have not hired either because of the difference in opinion on the funding range ( you seem to agree with firm 1 that range can be large and not limited as in firm 2) and I lean toward firm 1 because of this.

However, firm 1 also says that DB 5500 can include also include my individual 401k 5500sf as 1 filing and firm 2 says it can't be done and must have two 5500's.  If this is the case, it casts doubt on my hiring firm 1.

Can the DB 5500 and the individual 401k 5500 be filed on 1 5500?

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Theoretically, yes, but at the expense of a design which would be less expensive and more responsive to your needs.

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Therefore, I can keep filing my individual 401k 5500sf on my own ( I will not be making contributions going forward and will in fact be making in service distributions to convert into ROTH IRA).  This why I want to zero out my income going forward.

This would bring me back to firm #1 with the broad funding range, which is important to me.

Agreed?

Thank you Mike!

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You did catch my drift that the design that Firm 1 is presenting is two or three orders of magnitude more complicated than you want, right? That is, if I'm right as to what I think they are advocating.  And the simpler design gives you complete flexibility in all years (within reason)?

 

 

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SteveK, it sounds like you ought to hire firm #3, Mike Preston.

  • Haha 1

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