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Cash Balance vs. Defined Benefit

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  • #31




    Thank you Kon.  One last question – I noticed you referred to being able to put in more than the 6% PSP if the group payroll is less than 31%.  Does this apply for a Solo LLC, ie if I claim $600k in W-2 income through my LLC (taxed as an SCorp) – understanding that the max that can be counted for CB is $280k – I can put in something like $87k CB + $36k PSP, so that’s $123k.  Since 31% of my $600k income is $186k, does that enable me to put in another $20k to bring the total 401K contribution to $56k?

     

    2nd question – any reason not to put my W-2 at $600k?  I know I have to pay an additional 2.9% Medicare tax + 0.9% Obama tax over $200k (Social Security caps out at $132,900).  So my additional FICA tax is only 3.8%, and if I am getting a 6% PSP contribution (or more, if I can use the 31% payroll rule), then it makes up for the additional FICA, correct?
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    You are always limited to 6% in a solo plan. If you max out your PS in a solo plan, your CB contribution will end up much lower, so it is not a good idea. Your W2 should be $280k because anything more does not count toward your retirement plan contribution calculation. Also, CB contribution (and PS) is made from your company cash, not W2, so you want to have enough money left to pay those contributions.
    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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    • #32
      Very helpful, thank you Kon!  When I am ready to finally do a plan, I may be paying you a visit, you are certainly very knowledgeable, so thanks again!

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