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  • DBB and 401k

    To make a long story short...I had to retire last year at age 57 due to health issues but thanks to the miracle of modern medicine, I'm now cured.  I rolled my 401k into an IRA after I retired.  I do part time insurance utilization work as an independent contractor using an  LLC with S corp selection.  I plan to work part time for my prior physician group starting in a few weeks and will be eligible for some 401k contribution as an employee (too old to be rehired as a partner again) and want to the keep the insurance utilization work for the long term.

    Could I use a DBB for my independent contractor work in conjunction with the 401k?  I would think I will make around 120k from the independent work (probably split around 50/50 salary and distributions) and around 75k from the part time employee work with my group.  I am in a position to maximize contributions since I have passive income coming in from investments.

    Does a DBB make sense and if so, where would I go to set that up properly?  Thanks for the thoughts.

  • #2
    It depends.  For one thing, to max out your DB contribution, you will need to have the entire $120k paid as salary.  So you can contribute $18k + $6k catch up at your practice (with some potential matching and/or profit sharing) and then you can also do 6% profit sharing and a DB contribution.  At age 57 you can pretty much stuff the entire $120k into a DB plan, but the problem is that you need to commit to a certain level of contribution over at least 3-5 years or so.  While you can modify it, that won't be a good idea.  You need to figure out whether your self employed income is going to last for a while, and also determine how much you can comfortably contribute every year into the DB plan.  With a solo 401k plan alone you can put away as much as $54k or so with $120k salary.  If you can make contributions at your other practice, and make enough money to live on while maxing out your DB plan contribution from your SE income, then it might work.
    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]gement.com | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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    • #3
      Hi Hawkeye -

      My company, Dedicated Defined Benefit Services specializes in small defined benefit plans and has worked with over 3000 self-employed and small business owners.  The answer to your question is yes - you can continue to contribute to the 401(k) at work - maxing out the salary deferrals.  You can open a defined benefit plan for the independent income and the amount you can contribute to the DB will depend on the amount you pay yourself in W-2 salary.  You can even open a solo k and put up to 6% in profit sharing.  You can only take salary deferrals for a total of $24,000 for the year across both 401(k) plans.

      You can run your own estimates on our calculator at: www.dedicated-db.com - which takes 2 minutes or we can run one for you if you call 866-269-2706.  A custom estimate can take in to account prior years' income and other factors to get as close to the amount you want to save as possible. Attached is an overview.  Hope this helps.

      Karen

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