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Husband/wife defined benefit plan/profit sharing plan complexities

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  • Husband/wife defined benefit plan/profit sharing plan complexities

    Hi folks,

    I posted this at www.bogleheads.org, but wanted to see if any of you smart folks have any insight into my particular situation. This website is amazing and I advertise it as a wealth of great information to all my residents.

    I have a DBP that is funded to support my 3 year high average (near max for 415c purpose) and that of my spouse who is employed by me (acting as a sole proprietor) to help me with my consulting business. She does significant high value work for me that justifies her roughly $45000 salary.

    In addition to the DBP contribution as set forth by the actuary, we are allowed a 6% profit sharing contribution. Because I am covered by a 403b at work, my total contributions to the 403b and solo-401k (the profit sharing plan) are limited to a combined 54k (adroitly but disappointingly brought to my attention by SpiritRider). My wife has a solo-401k through my business as well, to which she has contributed the maximum $18k.

    Let's say for argument's sake that I have net profit of 300,000 after expenses, SE taxes and DBP contributions. Theoretically, I could put $18k into the profit sharing plan. However, because of my 403b contributions (employee and employer), I might only be able to make $5000 in contributions on my behalf (to bring the total to $54000 for 2017), leaving $13k to potentially allocate. Can I allocate all of that to my wife's solo-401k (again accounting for her $45k salary) or can I only make a 6% contribution based on her salary (and would this be pre or post employee solo-401k contributions)???

    In years when I do not have a DBP contribution to make (possibly next year due to the plan already being funded near max), am I entitled to the usual 20 or 25% funding of the PS plan (limited on my behalf to the combined 55k limit in 2018 of the 403b and solo-401k contributions) and can I allocate the remaining PS contribution to my wife (ie, if I make 300,000 net schedule C profit and theoretically could contribute 50,000 to PS but can only contribute 5,000 on my behalf due to retirement plan contributions at work, can I allocate the remainder to my wife's solo-401k, at least up to her salary, or is she limited to 25% contribution).

    I have exhausted all attempts to answer this question through my own independent review and was wondering if anyone had an opinion on this.

    Sorry if this seems like a complex situation. Feel free to ask for further clarification.

    Thank you in advance for any advice you can offer.

    SR

  • #2
    I would suggest that you work with your actuary to figure this out. Ultimately, anything suggested here is just an opinion that might or might not be accurate.  You will need to pay someone to provide you with good actionable (and accurate) advice, and your actuary/TPA would be someone who should be able to provide this type of advice to you.  You might need to pay them their hourly fee for that though because details matter, and you don't want to make any mistakes with this.  You might ask them to prepare a spreadsheet for you with various scenarios to see what you can and can't do in your specific situation.
    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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