Paul Breslau 602-692-6832

paul@hraz.com

Are you or someone you know a
professional or small business
owner without employees
or with just a few? Do you
make $300,000 or more filing jointly or
$150,000+ filing singly? Then you may
be losing important Qualified Business
Income or QBI tax deductions that could
be avoided. Even if not earning that
much or losing the QBI deduction you
should investigate implementing a 412(e)
(3) retirement plan, or at least a defined
benefit plan.
There is a hierarchy of possible retirement
plans for small business owners
and professionals. For example, in 2019
a SIMPLE Salary Deferral plan allows a
$12,500 deduction. The 401k deduction
limit is $19,000 or $56,000 with profit
sharing. These plans have an extra allowance
for older people. A SEP IRA plan
also allows $56,000 without an age boost
option. These are defined contribution
plans.
There are many employer considerations,
such as the business match
percentage and the inclusion of loan
provisions. Another is post-tax Roth
contributions verses pretax contributions.
A safe harbor 401k plan will offer protection
from discrimination testing. Work
through these issues with a retirement
plan adviser.
There is another angle called nonqualified
deferred compensation plans. These
are often regarded as a great benefit for C
Corps or key executives of a pass-through
entity. Nonqualified means taxes have
been paid and many of the rules and
regulations on qualified funds can be
avoided.
The hierarchy moves on to defined
benefit plans, which are less common,
however favorable for small business
owners. These plans allow older business
owners to save significantly more in a
short period of time. These include cash
balance plans with limits over $60,000,
which can be combined with a 401k Plan
for an extra boost.
Near the top of the hierarchy is the
412(e)(3). For example, this plan allows a
high contribution amount of $354,000 for
someone age 55 and wants to retire at age
62. Larger contributions for older participants
are part of the plan. However,
changes resulting from the “2018 Tax
Cuts & Jobs Act” are what make these
412(e)(3) plans most compelling. The
costly impact of the qualified business
income or QBI tax rules can be greatly
reduced or avoided.
Ideal 412(e)(3) candidates are professionals
and small business owners with
five or fewer employees. Also necessary
are high and stable profits with an older
owner and younger employees. Finally,
the ability to make ongoing contributions
for at least a five-year period is
recommended.
One big take away is that the options
and alternatives; the pros and cons; the
regulations and requirements are all
incredibly complex. These frequently
change over time. Working with a team
of seasoned and experienced professionals
in tax and retirement plan fields is
imperative. The 412(e)(3) defined benefit
retirement plan is only invested in a life
or annuity policy.
Consult with your tax adviser or CPA.
Then if considering for defined contribution
or defined contribution plan, seek out
a retirement plan specialist or contact me
for some names of those I know and trust.
For a 412(e)(3) plan, seek out your own
financial adviser who is also a specialized
insurance agent or contact me to be connected
to ones who are pioneers in this
strategy. Another alternative is to refer
your tax or investment adviser to me for
initial discussions.
I am partnering with leading local
experts in all lines of insurance and
business services. Reach out to me at 602-
692-6832 or paul@hraz.com for an initial
conversation, evaluation, or referral. 
Paul Breslau, registered health underwriter,
registered employee benefit consultant, chartered
life underwriter, chartered financial
consultant, chartered adviser for senior living,
is president of Breslau Insurance & Benefits
Inc. Contact: 602-692-6832; hraz.com; paul@
hraz.com.
By Paul Breslau, Breslau Insurance & Benefits Inc.

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