Case Studies

Maximizing Tax Savings:

Nick is 52 years old and expects to have annual W-2 income of at least $300,000 from his law practice until he retires in ten years. By establishing a defined benefit plan, he can make a tax-deductible contribution of $138,000–more than twice what he could have contributed to his SEP or 401(k). If Nick wants to maximize deductions this year, he can also set up a 401(k) and contribute an additional $36,700 for total deductions of $175,200 and tax savings of $66,500 (@ a 38% combined federal and state marginal tax rate).

Taking Advantage of a Part-Time Income Opportunity:

Charles is a 56-year-old professor at the local university business school and plans to retire in six years. He consistently earns an additional $150,000 each year consulting after paying his self-employment taxes. The university provides him with a 403(b) plan to which he’s been contributing. Charles sets up a defined benefit plan to reduce his taxable income and makes a tax-deductible contribution of $120,000 based on his consulting income, thereby saving himself $45,600 in taxes (@ a combined 38% federal and state marginal tax rate).

Building Retirement Wealth with Spouse’s Income:

Teresa is 60 years old and is a sole proprietor earning $100,000 each year after payment of self-employment taxes. She’s married to a high-income executive and they don’t need Teresa’s income to maintain their lifestyle. They both plan to retire in five years and want to deduct as much as they can this year to add to their retirement wealth. Teresa can set up a defined benefit plan and make a tax-deductible contribution of $80,000–saving 80% of her earnings for retirement while reducing her current-year tax bill significantly.

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