Owner Benefit Plan Frequently Asked Questions

Posted on September 20, 2011 by Bill Faiferlick

Is the Benefit Plan built around life insurance? 

No; because individual input drives the type of plan which is designed.
Will it affect our 401(k) plan?
No, the Benefit Plan is in addition to any existing 401(k) or profit sharing. Existing pension plans usually do not impact them. This is an additional benefit for executive/owners only. Typically, you opt-out of the existing employee retirement plan in favor of the new one with enhanced benefits. Account balances in the 401(k) remain while your new deductions and contributions are made to the new benefit plan for you and those you wish to include.
Are the deductions really worth it?
You’ll have to decide that! An Owner Benefit plan (if there are employees) separates the owner(s) out of the current 401(k) profit type sharing arrangement and installs the owners into a separate plan where a truly meaningful tax deduction is available, for example, annually between $80,000-$350,000.
Will you effectively increase the rate of return on my investment portfolio?
No; a Benefit Plan is unrelated to your investments. It is a separate, stand alone benefit plan with unique benefits, not intended for the rank-and-file employee. It can, however, return a 40% accumulation over after tax investing depending on the make-up of the plan.
I enjoy paying taxes. It’s my patriotic right. It doesn’t sound like your services are useful to me?
Probably not! Take 2 aspirins and call us tomorrow. I’m confident you will eventually determine you can find a better use for an extra million dollars than choosing to give it to our government! All kidding aside, let me ask you a few questions.
  1. Is your business for profit?
  2. Are you currently taking advantage of deductions and or write-offs available to you or your business?
  3. Are you currently taking advantage of deferring money into a retirement plan?
  4. Do you use an accountant to calculate how much tax you owe each year? Do you hope to pay as little as possible?
If you answered yes to any of the above questions, then you do understand that paying more than legally necessary in the form of taxes is not something you really want to do. This is the essence of a benefit plan. You may now have an additional tool with which to actively manage that liability.
My disposable income is such that I don’t think I can qualify for a Benefit Plan?
Perhaps you can. Let’s say you’re investing around $50,000 annually, with after-tax dollars. That would require about $85,000 in taxable income (tax of about $35,000) to net the $50,000 to invest. What if you could set up a benefit plan to help you invest the $85,000 on a pre-tax basis? Would you be interested in effectively lowering your tax bill and accumulating a nice amount of money in the process?
Our CPA handles all that. Are you suggesting we change CPA’s?
Absolutely not. They have an important role to provide you with an independent assurance that the tax savings are there. Your CPA will be provided the same type of information to verify and settle the deductibility issue. Once you’re assured the deduction is available, it becomes a business decision whether to take what you’re legally entitled to.