Defined Benefit/Defined Contribution Combo?

[Pammie57]

We have a client who makes a ton of money - well over $1,000,000 each year.  He wants to put in more than the DC limit of $56,000.  He is an S Corp with a W-2.  I know very little about how DB plans work.  Could he possibly put an additional $225,000 into a DB plan.  What about a cash balance plan?  Would love some guidance on this.  Thanks!

[jpod]

It sounds like he could be a good candidate for a DB plan (which doesn't necessarily have to be a cash balance plan) if he doesn't have too many NHCE employees (taking into account IRC Section 414 aggregation), but he needs to confer with a pension actuary.    

[Pammie57]

Thanks - Currently he is the ONLY employee....

[NJ Mike]

You should look into a DB plan as depending on your client's age, etc. there could be substantial contributions possible.  I'm not a fan of a one person cash balance plan although that topic has been discussed on this board.  There are dual plan limitations on overall contributions that could lower the amounts available to be contributed to the DC plan.

[AndyH]

Age?

[CuseFan]

Yes, adding a DBP would make a lot of sense, the max contribution would depend on his age, but his profit sharing would need to be limited to 6% of W-2 pay because of combined plan deduction limit rules. If current plan is just profit sharing, a 401(k) provision should be added to get the extra $19k or $25k salary deferral in addition to the 6% PS.

[jpod]

Of course age is important.  I just didn't want to get into any details because information secured from this message board would be no substitute for a conversation with an actuary (including the actuarial fees and other costs of carrying the plan in relationship to the anticipated level of tax-deductible contributions).  Also, the client's tax advisor should weigh in on the extent to which the QBI deduction could be impacted here.      

[AndyH]

2 hours ago, jpod said:

Of course age is important.  I just didn't want to get into any details because information secured from this message board would be no substitute for a conversation with an actuary (including the actuarial fees and other costs of carrying the plan in relationship to the anticipated level of tax-deductible contributions).  Also, the client's tax advisor should weigh in on the extent to which the QBI deduction could be impacted here.      

OK, no argument but the question was "Could he possibly....." and that, in general terms, could be answered by knowing the person's age.

[jpod]

AndyH, you're right in terms of the "$225,000," I was just addressing it more generally.