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Cost of DBB

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  • Cost of DBB

    I'm an independent contractor as and LLC S corp selection (with no other employees) and am looking into setting up a defined benefit plan.  The only quote I've received is a cost of $750 to set it up and $4000-4500 yearly.  That yearly fee seems like a lot to me.  Anyone with experiences or recommendations of a provider of such a service?  Thanks.

  • #2
    WoW!

    I have no experience, but with fees like that, I doubt it would be worth doing. In your shoes (and I have been) I would just set up a solo 401(k) and put some Vanguard index funds in it.

     

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    • #3




      I’m an independent contractor as and LLC S corp selection (with no other employees) and am looking into setting up a defined benefit plan.  The only quote I’ve received is a cost of $750 to set it up and $4000-4500 yearly.  That yearly fee seems like a lot to me.  Anyone with experiences or recommendations of a provider of such a service?  Thanks.
      Click to expand...


      It depends on what services you are looking for.  Basic admin services might cost around $2k a year for a combo plan.  There is also investment management involved, and that costs extra.  These are not DIY plans, so you really need to understand what you should and shouldn't do with this type of plan, so getting the best advice cost-effectively is always a good idea.  For one thing, many docs start these plans because they want to contribute for a year or two, but you have to commit to at least 4-5 years of ongoing contributions, so before starting this type of plan you have to make sure that it is a good fit for you.
      Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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      • #4




        You don’t need investment management if you are comfortable with the info from here and bogleheads. I don’t pay any of that personally for my DB plan. If you don’t feel uncomfortable or understand the issues with the investments then sure pay someone to do it.
        Click to expand...


        I don't think bogleheads mentioned anything about how to set crediting rates, how to manage a DB portfolio so that it generates a sufficient return so that the account is not overfunded or underfunded, and how to manage both portfolios together (DB and 401k) given that the DB portfolio would be primarily fixed income (especially for those near retirement).  A DB plan is a tax planning tool and it is not the same as a solo 401k plan, so I wouldn't want to give anyone the impression that basic rudimentary knowledge is not enough in this case, and few, if any, doctors will spend enough time to get this one right.  Also, there is the issue of the right plan design, making sure one has adequate cash flow and so on.  Also, many docs don't understand that this is the type of plan that has to be funded and that they can't amend it every year, and without quality advice, they will make many mistakes that can be avoided if they get quality advice on these very complex plans.  Also, as you mentioned, many providers do charge costs that they don't disclose upfront, so that's another issue with these plans.
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          I would like to do both a 401k and DBB.

          Yes, the fees are high but when one considers that it can grow tax deferred and rolled into an IRA, it can still very much be worth it.

          And Kon is correct.  DBB's are complex vehicles that require monitoring so that under or over funding isn't an issue among other things.

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          • #6




            I would like to do both a 401k and DBB.

            Yes, the fees are high but when one considers that it can grow tax deferred and rolled into an IRA, it can still very much be worth it.

            And Kon is correct.  DBB’s are complex vehicles that require monitoring so that under or over funding isn’t an issue among other things.
            Click to expand...


            Another cool feature of this type of plan is the ability to do in-plan Roth conversions, which can be done very easily without selling or moving assets. So for that reason you can roll your DB plan inside your 401k plan instead.  This also provides for asset protection as well vs. the IRA.
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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