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How DB plan effects Profit Sharing contribution

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  • How DB plan effects Profit Sharing contribution

    Would a defined benefits plan limit my Profit Sharing contribution in my circumstance. I am 37 years old. Many calculators estimate a DB contribution of $41,000 per year. I make 500k to 600k. At first I thought I could contribute 18k employee plus profit sharing of 6%. Then I saw that the total deductible limit for the two could equal up to 31% of compensation. If the latter is true, then 94k (41k plus 53k) would be less than 31percent and allowed. Am I right?

  • #2
    Not enough information and a very complicated topic. Are you self-employed? Working for a group that has a combo plan in place? Considering bumping up your PS plan with a cash balance plan for your business? What you propose is possible in the right situation, but this is a question for a TPA and I am not an expert in this area. This article may be helpful to you.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      Would a defined benefits plan limit my Profit Sharing contribution in my circumstance. I am 37 years old. Many calculators estimate a DB contribution of $41,000 per year. I make 500k to 600k. At first I thought I could contribute 18k employee plus profit sharing of 6%. Then I saw that the total deductible limit for the two could equal up to 31% of compensation. If the latter is true, then 94k (41k plus 53k) would be less than 31percent and allowed. Am I right?
      Click to expand...


      Yes, you are limited to 6% profit sharing in a non-PBGC plan. I’m not sure what calculators you are using. The formula can be different depending on the type of plan design you want (which would depend on your retirement age among other things). I’d have a TPA/actuary make the calculation for you. Also, it doesn’t matter how much you make since only $265k is considered for your plan contribution. According to several websites, your maximum CB contribution is around $68k. If you add another $18k to it, and 6% of $265k, the total is around $100k or so, thus it looks like $94k is not far off. By the way, if you have a spouse on the payroll, you can add another ~$40k into the plan for the spouse as well.

      There are different types of plan design (front-loaded, level and back-loaded), and I believe that because you are 37, you automatically get a front-loaded design, though not all calculators are providing you with an accurate estimate.
      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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