Defined Benefit Plan

[EnjoyIt]

I am an independent contractor and last year on top of my 401k I started a defined benefit plan for myself through my PLLC taxed as an S-corp.

The contribution limits have been very nice, but now I am curious how I file taxes on that money.  Since my corporation payed out 6% or $10k in a 401k plus another $110k though the defined benefit plan I documented $120k in my 1120s.  I see I need to fill out Form 5500.

Is there anything else I need?

Do I do two separate forms, one for the 401k and another for the DBP?

Are there any other forms I need to fill out that I am missing?

 

This is my first year doing this and I want to make sure I covered all of my line items.

 

Thanks,

-EI

[litovskyassetmanagement]

EnjoyIt wrote:

I am an independent contractor and last year on top of my 401k I started a defined benefit plan for myself through my PLLC taxed as an S-corp.

The contribution limits have been very nice, but now I am curious how I file taxes on that money.  Since my corporation payed out 6% or $10k in a 401k plus another $110k though the defined benefit plan I documented $120k in my 1120s.  I see I need to fill out Form 5500.

Is there anything else I need?

Do I do two separate forms, one for the 401k and another for the DBP?

Are there any other forms I need to fill out that I am missing?

 

This is my first year doing this and I want to make sure I covered all of my line items.

 

Thanks,

-EI

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I would not recommend doing a plan as complex as a DB plan without a good TPA.  Your TPA should take care of all of the form 5500.  If they don't, you should find one who does.  Also, you should have a CPA do your taxes.  Combo plans are not DIY.  There are significant compliance penalties if you make mistakes on your form 5500.  Your TPA should also assist you with some of the tax questions (though ultimately it would be your CPA who should make sure that your taxes are done correctly.

There is also the investment management component that you need to understand when it comes to CB plans, and the crediting rate issues.  So I would go back to your TPA and ask them all of your questions, and if they can't answer these, I would hire a TPA who can.  The same goes for taxes.  Once you make enough money to afford a combo plan, I would hire the best CPA money can buy because mistakes will lead to audits and penalties (and with such complex financials mistakes will happen for sure).

[EnjoyIt]

Kon,

thanks so much for the response.  I have a TPA and they will do the 5500 for the defined benefit plan, though I am responsible for my 401k.  In all honesty it does not seam that complex.  The actuarial part does not seam that complex either. It is just a simple math problem, but I am ok paying them for their service.  They so far have been very responsive and a pleasure to work with.  They deserve the fee they earn.

I stopped using accountants recently because I found they created more stress than they alleviated.  I spent one tax season learning what I needed to know and now do my own taxes.  That year was a bit stressful, but in the long run I am much better off.  Retrospectively I found mistakes and missed deductions on my previous tax returns done by different accountants. Unfortunately no one cares about my money and my tax return more than I do.  You know what they say, "If you want the job done right, you have to do it yourself."  I would be glad to go back to an accountant in the future just to save me the time filling two separate corporations and a personal return if I could actually find someone that I can trust.  I keep asking my colleagues and have yet to find anyone.

So, back to the questions at hand:

1) Is form 5500 all I need (other than the line item on my 1120s?)

2) Can I have two separate 5500 forms.  Looking at last years 5500ez it looks like I need a separate form for each plan number which means one for the 401k and the other for the DBP.  Am I correct?  I still have a few months to submit one so time is plenty.

[litovskyassetmanagement]

EnjoyIt wrote:

“If you want the job done right, you have to do it yourself.”

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Totally disagree with this one when it comes to retirement plans.  I use a good CPA to do my taxes (though I do my own tax planning), and I use a TPA for my own retirement plan. When it comes to filling out forms 5500, I wouldn't touch that with a 10 foot pole.  One mistake/omission and you are audited by the IRS (and they love to audit HNW individuals).  I prefer a highly qualified TPA to fill those out and file them for me as well.  I doubt you or I would ever be able to do some things better than professionals who do it for a living.  And even though I work with retirement plans for a living, some things having to do with plan administration and compliance are better left to those who do it for a living.  Being a penny wise and a $ foolish is not a good long term strategy when it comes to retirement plans.  Ending up with a plan that's disallowed by the IRS because of mistakes made by the doc is the last thing on my list to try for my clients.

[litovskyassetmanagement]

Rex wrote:

My TPA does mine but it isn’t a complicated form.

Likely you filling out the form wouldn’t change your risk of audit. It’s not like you are doing something questionable any way.

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I wouldn't recommend that docs do this on their own, so encouraging those with combo plans to do everything themselves is not going to help them in any way (on the contrary, doing so might potentially result in problems for them down the line).  I don't care how knowledgeable one is, but if you don't do this for a living, you will not be as good as someone who does.  When it comes to law, taxes and retirement plans, I would make sure that you are getting the best advice money can buy.  I would especially make sure that your providers are the best ones though, because this does make a big difference.  Docs make way too much and have much to lose and will save way too little by doing these things themselves.

[litovskyassetmanagement]

Rex wrote:

Nice scare tactic

Docs can do their own taxes as well if they want as well.

It just isn’t that hard to fill out the forms.

Zero evidence that spending more money gets you better advice but I’m sure you think it does.

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It is not the amount of money spent, it is the quality that matters.  I have nothing against docs doing things themselves. However, I have a responsibility in front of my clients, so I would rather have them pay for good advice than recommend that they do it themselves (or try to dabble in something that's not my specialty).  It is really that easy.  I look at this as a form of insurance which does not cost a lot (as you can always find the right provider for a reasonable fee).

So when someone asks me a question, I provide an accurate answer if I can, but if I feel that as a result of my answer the doc might make mistakes and/or get into trouble (because it would require a lot more than is possible via this forum), I would rather send them off to someone who can provide them the right answer for a fee.

 

[litovskyassetmanagement]

I'm not going to argue with that one, I totally agree, that's why choosing the right TPA is key.  I respect your choice, but I've been working with multiple good TPAs, especially those who represent clients in front of the IRS in audits, and there are tons of examples of how easy it is to screw up a plan and how expensive these audits can be, so docs should decide for themselves on whether they will want to save a few bucks and spend a lot of time on the forums, or whether they should hire the best help.

[Bartl007]

While I agree that hiring professionals can be worth the cost on certain big ticket items, it is true that nobody cares more about your money than you do. As an example I found errors in the recommendations of 2 separate specialists that advertise on this site. I respect both of them and was happy with their service but everybody makes mistakes (even me!) Having a second set of eyes and knowledge of your own personal situation and the things that apply to you never hurts.

[EnjoyIt]

Kon Litovsky wrote:

EnjoyIt wrote:

“If you want the job done right, you have to do it yourself.”

Click to expand…

Totally disagree with this one when it comes to retirement plans.  I use a good CPA to do my taxes (though I do my own tax planning), and I use a TPA for my own retirement plan. When it comes to filling out forms 5500, I wouldn’t touch that with a 10 foot pole.  One mistake/omission and you are audited by the IRS (and they love to audit HNW individuals).  I prefer a highly qualified TPA to fill those out and file them for me as well.  I doubt you or I would ever be able to do some things better than professionals who do it for a living.  And even though I work with retirement plans for a living, some things having to do with plan administration and compliance are better left to those who do it for a living.  Being a penny wise and a $ foolish is not a good long term strategy when it comes to retirement plans.  Ending up with a plan that’s disallowed by the IRS because of mistakes made by the doc is the last thing on my list to try for my clients.

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I have had enough issues with specialists making mistakes that it is probably best to know what they are doing and keep an eye on them.  Eventually you may get to the point where all the info you pull together you can easily just place in the forms yourself.  The problem I have with many professionals is that they just don't care that much about your money. As for my actuary I was very impressed how fast and responsive they were. They already did my 5500 for the DBP.

The 5500 for the individual 401k is extremely easy to create.  Vanguard sends you all the info you need.  Just plop it in and done.

I have been audited a few times and it really is not that big of a deal.  You send the info the IRS requests and done.  The IRS is extremely friendly and helpful on the phone.

You say you use a good CPA.  I have yet to find good CPA that is responsive when asking questions, timely in filling paperwork and actually gives a ************************.  I'm sure they exist, but I have yet to find one.