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Maximizing A Retirement Contribution With A Defined Benefit Plan - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- [Toby] Alright, I am
interested in learning about
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a DB plan to maximize the
retirement contribution.
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How did we get so fast?
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It seems like we just skated
right on through these today.
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I'm interested in learning
about DB plans basically.
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So, I'm a one owner or
employee of a C Corporation
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medical practice.
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Fantastic question.
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Alright, so here's how a,
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by the way,
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what is a DB plan?
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- [Man] Defined benefit.
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- [Toby] Yeah, so here's how it works.
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Conception.
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In a defined contribution,
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I'm going to call that a DC,
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we define the amount
that you get to put in.
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So for example,
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I should step closer to the mic,
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so let's say that we're
putting money into a 401K
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and I'm deferring it.
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I know I can defer,
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if I'm under 50,
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18,500.
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So that's a defined contribution,
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I'm defining the contribution.
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In a defined benefit,
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we define what comes out of the plan.
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And you're allowed to max that out
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at about $220,000 a year.
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And before you get all excited
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and say great I can just
immediately say that
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I need to take $200,000 out a year,
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it's based on what an actuary,
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and a licensed actuary does,
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is they look at your salary,
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and I think it's three out of five years,
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and they do this average amount.
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They say basically,
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you're making let's say $150,000 a year,
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and they average that out,
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and then they calculate how many years
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you have to retirement,
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how much interest it's going to make,
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what inflation's going to be,
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what your income would keep going up to,
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and all these things,
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and they come up with a dollar amount,
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and that's the dollar
amount that you can put in.
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Now I'm going to freak
some of you guys out.
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You could quite literally,
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and I do have clients that put in
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over $600,000 a year
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into their defined benefit fund.
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And it is a tax deductible contribution.
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They do pay a tax when they take it out.
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- [Man] Yes.
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- So let's say you have somebody who's 50,
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who's making a couple hundred
thousand dollars a year,
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they're going to be able to put away a ton
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into that plan and defer their taxes.
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So, let's say you're making
a million dollars a year,
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and you're like oh goodness,
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I need to get some tax relief,
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you may be putting half
a million dollars a year
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into a plan,
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and you just cut your tax bill
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by more than 50%,
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'cause that 500,000 that
you just put in there
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was at the highest bracket.
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The first 500 you make
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has all sorts of deductions against it
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and lower tax brackets.
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So, I just cut my taxes significantly,
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and then when I take it out,
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I'll be retired so hopefully
my taxes are lower.
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Hope that makes sense.
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So, if you're in a medical practice,
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and especially if you're in a C Corp,
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A I'm going to run some numbers.
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I'd be looking at it saying hey,
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first off,
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in a professional practice as a C Corp,
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you're going to be at 21% now.
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You're probably used to
having your profits taxed
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at 35% right?
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And now it's going to be 21%,
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so you got a huge tax cut this year.
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So there's a bonus.
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Everybody else that's walking around going
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we don't care about that doctor.
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He just got a 14%
decrease in the tax rate.
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What?
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Yeah, it's pretty big.
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But we're going to look at it and say
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is it still better off to dump this money
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into a DB plan,
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'cause if you can dump a
few hundred thousand dollars
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a year into a DB plan,
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man they're like magic.
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Even if it's only a
couple hundred thousand,
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who cares?
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It's a tremedous tax break,
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and if you're in California,
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that couple hundred
thousand just saved you
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a hundred grand in taxes.
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And then you move to Texas
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when you retire.
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