Announcement

Collapse
No announcement yet.

Cash Balance Plan and Donald Trump proposed tax pan ?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Cash Balance Plan and Donald Trump proposed tax pan ?

    With Donald Trump victory and if his proposed tax plan will get implemented ,  will it make sense to do Cash Balance plan ?  , if marginal tax rate will be caped at 33%, and no 3.8% medicare tax? Or its just a dream?

    http://www.zerohedge.com/news/2016-11-11/what-donald-trumps-proposed-tax-cut-means-you

  • #2




    What tax rate are you going to assume on distributions?

    -20%

    How much are you going to pay to open, close, and maintain including any possible AUM fees?

    -2,000 to open , 2,500 to maintain and 2,500 to close and also I have 5 eligible employees and because it will be 401/CB combo I will be required to contribute 2.5% of their salary on top of administrative expenses.

    What would your CB plan invest in and how tax efficient is that asset class?

    20/80  with 10 year Treasury crediting rate.

    Tax deferral is only worth so much.

    I have a DB plan and I personally think people should load up the deductions this year (which should/could result in lower deductions/contributions in future years).
    Click to expand...


    What tax rate are you going to assume on distributions?

    -20%

    How much are you going to pay to open, close, and maintain including any possible AUM fees?

    -2,000 to open , 2,500 to maintain and 2,500 to close and also I have 5 eligible employees and because it will be 401/CB combo I will be required to contribute 2.5% of their salary on top of administrative expenses.

    What would your CB plan invest in and how tax efficient is that asset class?

    -20/80  with 10 year Treasury crediting rate.

    Tax deferral is only worth so much.

    I have a DB plan and I personally think people should load up the deductions this year (which should/could result in lower deductions/contributions in future years).

    Comment


    • #3
      I wouldn't make any changes until something is actually made law. Obama has proposed lots of things that never came to pass as has every president before him.

      Chances are good a DB/CB plan will still make sense for you later if it makes sense now, but obviously the lower the tax rate, the less benefit you get from tax protection.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

      Comment


      • #4
        The larger question with a Trump plan is if the proposed business tax cut from 35% to 15% applies just to C Corps or to all pass-through entities.  Private physician groups may have an opportunity to change their structure and save some serious $.

        As far as cash balance plans, for me it makes just as much sense at 39.6% marginal rate, as it does at 33% unless the AUM is crazy high or the investment return target is crazy low.  Most of us should still be planning to roll over these funds lump sum to IRA and eventually withdraw or Roth convert them at an effective tax rate below 25%, maybe much lower.

        I hope Trump returns to his original tax plan with income brackets in the 5-10-15% range and then "bargains" his way back to a 10-15-20% level.  I hate the idea of the 33% bracket starting at a much lower income level.  Could hurt docs in the 250-400K income range which is many of us.  Will definitely inhibit future Roth conversions and tax gain harvesting.  Will still discourage many from working more.  Will be difficult for a 33% top personal income rate to co-exist with a 15% business tax rate without much opportunity to abuse the system.

         

        Comment


        • #5




          The larger question with a Trump plan is if the proposed business tax cut from 35% to 15% applies just to C Corps or to all pass-through entities.  Private physician groups may have an opportunity to change their structure and save some serious $.

          As far as cash balance plans, for me it makes just as much sense at 39.6% marginal rate, as it does at 33% unless the AUM is crazy high or the investment return target is crazy low.  Most of us should still be planning to roll over these funds lump sum to IRA and eventually withdraw or Roth convert them at an effective tax rate below 25%, maybe much lower.

          I hope Trump returns to his original tax plan with income brackets in the 5-10-15% range and then “bargains” his way back to a 10-15-20% level.  I hate the idea of the 33% bracket starting at a much lower income level.  Could hurt docs in the 250-400K income range which is many of us.  Will definitely inhibit future Roth conversions and tax gain harvesting.  Will still discourage many from working more.  Will be difficult for a 33% top personal income rate to co-exist with a 15% business tax rate without much opportunity to abuse the system.

           
          Click to expand...


          Trump tax brackets:

          http://www.cbsnews.com/news/how-your-taxes-may-change-in-a-trump-presidency/






















































          Current (married filing jointly) Proposed (married filing jointly)
          Taxable income Tax bracket Taxable income Tax bracket
          $0 to $18,550 10 percent $0 to $75,000 12 percent
          $18,550 to $75,300 15 percent $75,001 to $224,999 25 percent
          $75,300 to $151,900 25 percent $225,000 or more 33 percent
          $151,900 to $231,450 28 percent
          $231,450 to $413,350 33 percent
          $413,350 to $466,950 35 percent
          $466,950 or more 39.6 per

           

          Comment


          • #6







            The larger question with a Trump plan is if the proposed business tax cut from 35% to 15% applies just to C Corps or to all pass-through entities.  Private physician groups may have an opportunity to change their structure and save some serious $.

            As far as cash balance plans, for me it makes just as much sense at 39.6% marginal rate, as it does at 33% unless the AUM is crazy high or the investment return target is crazy low.  Most of us should still be planning to roll over these funds lump sum to IRA and eventually withdraw or Roth convert them at an effective tax rate below 25%, maybe much lower.

            I hope Trump returns to his original tax plan with income brackets in the 5-10-15% range and then “bargains” his way back to a 10-15-20% level.  I hate the idea of the 33% bracket starting at a much lower income level.  Could hurt docs in the 250-400K income range which is many of us.  Will definitely inhibit future Roth conversions and tax gain harvesting.  Will still discourage many from working more.  Will be difficult for a 33% top personal income rate to co-exist with a 15% business tax rate without much opportunity to abuse the system.

             
            Click to expand…


            Trump tax brackets:

            http://www.cbsnews.com/news/how-your-taxes-may-change-in-a-trump-presidency/






















































            Current (married filing jointly) Proposed (married filing jointly)
            Taxable income Tax bracket Taxable income Tax bracket
            $0 to $18,550 10 percent $0 to $75,000 12 percent
            $18,550 to $75,300 15 percent $75,001 to $224,999 25 percent
            $75,300 to $151,900 25 percent $225,000 or more 33 percent
            $151,900 to $231,450 28 percent
            $231,450 to $413,350 33 percent
            $413,350 to $466,950 35 percent
            $466,950 or more 39.6 per

             
            Click to expand...


            That would be awesome for me personally. I could buy a new car every year with the difference.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

            Comment


            • #7
              Will fed taxes be lower for someone in 33% bracket currently?

              Comment


              • #8




                I wouldn’t make any changes until something is actually made law. Obama has proposed lots of things that never came to pass as has every president before him.

                Chances are good a DB/CB plan will still make sense for you later if it makes sense now, but obviously the lower the tax rate, the less benefit you get from tax protection.
                Click to expand...


                I have to agree with WCI.  Corporate rates sound too good to be true.  Also, someone in a 33% federal bracket will still be subject to a state tax rate of as high as 13% in CA (and potentially rising, if the fed money will be tighter).  So I see some states raising the state income tax if that happens.

                The fundamentals do not change just because tax rates change.  For high income earners a CB plan will still be a better choice than doing anything else even if the highest bracket is 33%.  In any case, a CB plan would probably last no more than 10-15 years, after which the assets are moved back into a 401k plan, and if a CB plan does not make sense anymore, would a 401k plan make sense?

                We should go back to fundamentals.   It is always a good idea to diversify your assets among tax-deferred, Roth and after-tax, and I wouldn't try to make predictions about the future (other than erring on the side of caution).  There are ways to minimize your future tax liability. This can be done by using Roth conversions for those in the lower tax brackets or by doing backdoor Roth/Roth salary deferrals for example (especially if the taxes are lowered).  So a 401k plan is a perfect platform for doing all of this because you have full control over your assets.  You can either make tax-deferred contributions or Roth contributions or convert some of your plan assets to Roth when necessary.  After-tax should also not be neglected because any taxes on Roth conversions should be paid with after-tax money.  A CB plan can also be complemented by an aggressive Roth 401k contributions. I would still worry more about the cost vs. benefit of using any retirement plan (CB included) because the biggest cost to a small practice would be

                employer contributions - tax brackets are only a part of the overall determination of whether a CB plan should be used, and if the numbers work out in your favor, so be it.  For some people, even with the 39.6% bracket the CB plan did not make sense because of high employer contribution that depends solely on their practice demographics.
                Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                Comment


                • #9
                  His tax plan is apparently a starting point for negotiation. Agree theres no reason to do anything until we know exactly what the real law would turn out to be. However, if it came to pass I plan to max out the 401k and HSA and put the rest into taxable. That would be an amazing rate, so of course I doubt its coming into existence. Been wrong before though, often and recently.

                  Comment


                  • #10
                    We'll know soon enough. Kevin McCarthy the GOP House leader (#2) just indicated that the tax plan would be brought up as soon as the new house is sworn in (January 3rd), and sent to the new Senate for approval, as to be ready for President Trump's signature by Jan 20 Inauguration Day. Things may not move quite that fast, but point is the new GOP congress will likely not even wait for Trump to be sworn in to start passing bills. Things are going to move fast.

                    Also high likelihood that HSAs will now be available to all as part of Obamacare replacement or amendment.

                    Not to mention massive childcare deductions for many of our two spouse working households (if you can keep your AGI below 500K). Cash balance plans may be helpful for the sole purpose of keeping AGIs below 500k to claim childcare and elder care deductions!

                    Comment


                    • #11
                      Sure would be nice if HSA contribution limits were increased.

                      Comment


                      • #12
                        I think the biggest advantage to using cash balance plans under tax reform is staying below the $315,000 section 199 threshold. That is really the key. Getting the extra 20% deduction is great and will often push marginal tax savings above 40%. Make sure you check with your CPA.
                        Emparion: Cash balance plans and defined benefit plans for medical professionals | 480-770-4620

                        Comment

                        Working...
                        X