Cash Balance Plans

[AlexDDS]

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan administered by TPA and Vanguard( custodian )pooled account  coupled with our New Comparability 401K plan.  I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for TPA/actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

[litovskyassetmanagement]

AlexDDS wrote:

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan coupled with our New Comparability plan administered by TPA and Vanguard(pooled account) as a custodian. I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

Click to expand...

Actually, it is not a given that your EF plan has a good design, and that your plan document will work together with a CB plan.  You will definitely need a good TPA who can design the 401k plan to work with the CB plan, and keep EF as a custodian (not the best one, but it could work just fine as long as the TPA takes care of everything).  The TPA would also have to take care of the testing. An actuary just certifies the design - what you need is a good TPA who knows how to do custom-designed 401k plans for medical/dental practices with varying demographics. I've written on this topic extensively here:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

All of these are valid questions.  I would recommend this thread for more information:

http://www.dentaltown.com/MessageBoard/thread.aspx?s=2&f=214&t=249015

But to answer your questions, 3-5 years is reasonable and you can transfer all of your assets into a 401k.  The TPA I work with does not charge anything to terminate a plan, and uses a top notch actuary to certify her design (so you don't need to engage with an actuary yourself), but many others might charge as much as $10k for termination.  Admin costs are rather competitive with most TPAs, but as I mentioned in the above article, it is your plan design that has to be considered first, and that alone can save you a significant amount of employer contributions (especially if the plan is not designed using the best possible design).

Also, before considering a plan I'd do a comprehensive design study to make sure your CB plan employer contribution is not excessive and will be acceptable given your own contribution needs.  And of course, you will need to design your 401k plan and CB plan portfolios appropriately (discussed in detail in the 2nd link above).

[AlexDDS]

Kon Litovsky wrote:

AlexDDS wrote:

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan coupled with our New Comparability plan administered by TPA and Vanguard(pooled account) as a custodian. I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

Click to expand…

Actually, it is not a given that your EF plan has a good design, and that your plan document will work together with a CB plan.  You will definitely need a good TPA who can design the 401k plan to work with the CB plan, and keep EF as a custodian (not the best one, but it could work just fine as long as the TPA takes care of everything).  The TPA would also have to take care of the testing. An actuary just certifies the design – what you need is a good TPA who knows how to do custom-designed 401k plans for medical/dental practices with varying demographics. I’ve written on this topic extensively here:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

All of these are valid questions.  I would recommend this thread for more information:

http://www.dentaltown.com/MessageBoard/thread.aspx?s=2&f=214&t=249015

But to answer your questions, 3-5 years is reasonable and you can transfer all of your assets into a 401k.  The TPA I work with does not charge anything to terminate a plan, and uses a top notch actuary to certify her design (so you don’t need to engage with an actuary yourself), but many others might charge as much as $10k for termination.  Admin costs are rather competitive with most TPAs, but as I mentioned in the above article, it is your plan design that has to be considered first, and that alone can save you a significant amount of employer contributions (especially if the plan is not designed using the best possible design).

Also, before considering a plan I’d do a comprehensive design study to make sure your CB plan employer contribution is not excessive and will be acceptable given your own contribution needs.  And of course, you will need to design your 401k plan and CB plan portfolios appropriately (discussed in detail in the 2nd link above).

Click to expand...

Thank you.

Actually, I have a good plan design and would like to keep EF as a 401k tpa , and have a separate provider for Cash Balance plan. The only issue I can see , that we have 6 years vesting schedule for our PS plan vs 3 years for Cash Balance Plan? Any TPA names? I was only able to find ,using wci search, Alliance pension and National Employee Benefit Services , Nora Bethman  ?

[litovskyassetmanagement]

AlexDDS wrote:

Kon Litovsky wrote:

AlexDDS wrote:

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan coupled with our New Comparability plan administered by TPA and Vanguard(pooled account) as a custodian. I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

Click to expand…

Actually, it is not a given that your EF plan has a good design, and that your plan document will work together with a CB plan.  You will definitely need a good TPA who can design the 401k plan to work with the CB plan, and keep EF as a custodian (not the best one, but it could work just fine as long as the TPA takes care of everything).  The TPA would also have to take care of the testing. An actuary just certifies the design – what you need is a good TPA who knows how to do custom-designed 401k plans for medical/dental practices with varying demographics. I’ve written on this topic extensively here:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

All of these are valid questions.  I would recommend this thread for more information:

http://www.dentaltown.com/MessageBoard/thread.aspx?s=2&f=214&t=249015

But to answer your questions, 3-5 years is reasonable and you can transfer all of your assets into a 401k.  The TPA I work with does not charge anything to terminate a plan, and uses a top notch actuary to certify her design (so you don’t need to engage with an actuary yourself), but many others might charge as much as $10k for termination.  Admin costs are rather competitive with most TPAs, but as I mentioned in the above article, it is your plan design that has to be considered first, and that alone can save you a significant amount of employer contributions (especially if the plan is not designed using the best possible design).

Also, before considering a plan I’d do a comprehensive design study to make sure your CB plan employer contribution is not excessive and will be acceptable given your own contribution needs.  And of course, you will need to design your 401k plan and CB plan portfolios appropriately (discussed in detail in the 2nd link above).

Click to expand…

Thank you.

Actually, I have a good plan design and would like to keep EF as a 401k tpa , and have a separate provider for Cash Balance plan. The only issue I can see , that we have 6 years vesting schedule for our PS plan vs 3 years for Cash Balance Plan? Any TPA names? I was only able to find ,using wci search, Alliance pension and National Employee Benefit Services , Nora Bethman  ?

Click to expand...

Vesting schedule is not a problem, they do have different ones.  There are many TPAs who do CB plans, but you really need to understand what you are getting. You can always shop around - the prices would be nearly identical, but the services will not be.  Some TPAs will simply sell you a plan whether it is the best solution for you or not.  Did you know that your profit sharing will be limited to 6% inside your 401k plan with a CB plan?  And you might need to redesign your 401k plan to work better with a CB plan (as well as to run multiple illustrations for various scenarios, as CB plan designs can be different depending on multiple factors).  That's why having one TPA who will do the overall design and testing is always better.

Then there are investments in both plans. Who will be managing investments for the CB plan?  Also, your allocations inside the 401k plan would have to be adjusted to account for the CB plan's conservative investment approach.

[AlexDDS]

Kon Litovsky wrote:

AlexDDS wrote:

Kon Litovsky wrote:

AlexDDS wrote:

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan coupled with our New Comparability plan administered by TPA and Vanguard(pooled account) as a custodian. I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

Click to expand…

Actually, it is not a given that your EF plan has a good design, and that your plan document will work together with a CB plan.  You will definitely need a good TPA who can design the 401k plan to work with the CB plan, and keep EF as a custodian (not the best one, but it could work just fine as long as the TPA takes care of everything).  The TPA would also have to take care of the testing. An actuary just certifies the design – what you need is a good TPA who knows how to do custom-designed 401k plans for medical/dental practices with varying demographics. I’ve written on this topic extensively here:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

All of these are valid questions.  I would recommend this thread for more information:

http://www.dentaltown.com/MessageBoard/thread.aspx?s=2&f=214&t=249015

But to answer your questions, 3-5 years is reasonable and you can transfer all of your assets into a 401k.  The TPA I work with does not charge anything to terminate a plan, and uses a top notch actuary to certify her design (so you don’t need to engage with an actuary yourself), but many others might charge as much as $10k for termination.  Admin costs are rather competitive with most TPAs, but as I mentioned in the above article, it is your plan design that has to be considered first, and that alone can save you a significant amount of employer contributions (especially if the plan is not designed using the best possible design).

Also, before considering a plan I’d do a comprehensive design study to make sure your CB plan employer contribution is not excessive and will be acceptable given your own contribution needs.  And of course, you will need to design your 401k plan and CB plan portfolios appropriately (discussed in detail in the 2nd link above).

Click to expand…

Thank you.

Actually, I have a good plan design and would like to keep EF as a 401k tpa , and have a separate provider for Cash Balance plan. The only issue I can see , that we have 6 years vesting schedule for our PS plan vs 3 years for Cash Balance Plan? Any TPA names? I was only able to find ,using wci search, Alliance pension and National Employee Benefit Services , Nora Bethman  ?

Click to expand…

Vesting schedule is not a problem, they do have different ones.  There are many TPAs who do CB plans, but you really need to understand what you are getting. You can always shop around – the prices would be nearly identical, but the services will not be.  Some TPAs will simply sell you a plan whether it is the best solution for you or not.  Did you know that your profit sharing will be limited to 6% inside your 401k plan with a CB plan?  And you might need to redesign your 401k plan to work better with a CB plan (as well as to run multiple illustrations for various scenarios, as CB plan designs can be different depending on multiple factors).  That’s why having one TPA who will do the overall design and testing is always better.

Then there are investments in both plans. Who will be managing investments for the CB plan?  Also, your allocations inside the 401k plan would have to be adjusted to account for the CB plan’s conservative investment approach.

Click to expand...

I will be managing investments for CB plan . Its not a big deal because its mostly fixed income portfolio and employees part of the account will be 10-15%. Also, if its up too much - you get less tax deduction or can use it for next year contribution ,which is not a problem , if its down -you get more tax deductions and you have up to 7 years to make up shortfall . I dont think its a good idea to adjust 401k allocation to account for CB portfolio , because you need bonds for rebalancing and you can not increase % of equities too much in your CB portfolio or significantly rebalance  between 401k and CB accounts ,especially if you have partners. (now I understand why you like pooled 401k accounts).

[litovskyassetmanagement]

AlexDDS wrote:

Kon Litovsky wrote:

AlexDDS wrote:

Kon Litovsky wrote:

AlexDDS wrote:

We have 401k / profit sharing plan with Employee Fiduciary and would like to increase tax deferred space. We ( two partners 39 and 43 with 5-6 eligible employees ) would like to keep Employee Fiduciary Plan and have a separate Cash Balance Plan coupled with our New Comparability plan administered by TPA and Vanguard(pooled account) as a custodian. I have a few questions:

What is the cost to set up and administer cash balance plan?  Any names for actuaries?
What is minimal commitment period and how much it cost to terminate plan (early due to business or health circumstances ) , valuation cost ? Is it possible to terminate plan in a 3-5 years , transfer all assets into 401k and restart plan year later ?   Thank you.

 

Click to expand…

Actually, it is not a given that your EF plan has a good design, and that your plan document will work together with a CB plan.  You will definitely need a good TPA who can design the 401k plan to work with the CB plan, and keep EF as a custodian (not the best one, but it could work just fine as long as the TPA takes care of everything).  The TPA would also have to take care of the testing. An actuary just certifies the design – what you need is a good TPA who knows how to do custom-designed 401k plans for medical/dental practices with varying demographics. I’ve written on this topic extensively here:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

All of these are valid questions.  I would recommend this thread for more information:

http://www.dentaltown.com/MessageBoard/thread.aspx?s=2&f=214&t=249015

But to answer your questions, 3-5 years is reasonable and you can transfer all of your assets into a 401k.  The TPA I work with does not charge anything to terminate a plan, and uses a top notch actuary to certify her design (so you don’t need to engage with an actuary yourself), but many others might charge as much as $10k for termination.  Admin costs are rather competitive with most TPAs, but as I mentioned in the above article, it is your plan design that has to be considered first, and that alone can save you a significant amount of employer contributions (especially if the plan is not designed using the best possible design).

Also, before considering a plan I’d do a comprehensive design study to make sure your CB plan employer contribution is not excessive and will be acceptable given your own contribution needs.  And of course, you will need to design your 401k plan and CB plan portfolios appropriately (discussed in detail in the 2nd link above).

Click to expand…

Thank you.

Actually, I have a good plan design and would like to keep EF as a 401k tpa , and have a separate provider for Cash Balance plan. The only issue I can see , that we have 6 years vesting schedule for our PS plan vs 3 years for Cash Balance Plan? Any TPA names? I was only able to find ,using wci search, Alliance pension and National Employee Benefit Services , Nora Bethman  ?

Click to expand…

Vesting schedule is not a problem, they do have different ones.  There are many TPAs who do CB plans, but you really need to understand what you are getting. You can always shop around – the prices would be nearly identical, but the services will not be.  Some TPAs will simply sell you a plan whether it is the best solution for you or not.  Did you know that your profit sharing will be limited to 6% inside your 401k plan with a CB plan?  And you might need to redesign your 401k plan to work better with a CB plan (as well as to run multiple illustrations for various scenarios, as CB plan designs can be different depending on multiple factors).  That’s why having one TPA who will do the overall design and testing is always better.

Then there are investments in both plans. Who will be managing investments for the CB plan?  Also, your allocations inside the 401k plan would have to be adjusted to account for the CB plan’s conservative investment approach.

Click to expand…

I will be managing investments for CB plan . Its not a big deal because its mostly fixed income portfolio and employees part of the account will be 10-15%. Also, if its up too much – you get less tax deduction or can use it for next year contribution ,which is not a problem , if its down -you get more tax deductions and you have up to 7 years to make up shortfall . I dont think its a good idea to adjust 401k allocation to account for CB portfolio , because you need bonds for rebalancing and you can not increase % of equities too much in your CB portfolio or significantly rebalance  between 401k and CB accounts ,especially if you have partners. (now I understand why you like pooled 401k accounts).

Click to expand...

I've mentioned it before - CB plans are not DIY.  You basically take full discretionary fiduciary liability on yourself to save a few bucks, and that's never a good idea.  You actually don't need bonds for rebalancing - selling winners and buying losers is market timing.  It is always better to use incoming contributions for that instead as much as possible to avoid too much selling because this is where you shave off basis points off of your return especially if your timing is off (two transactions vs. one).  And your CB plan won't last more than 10-15 years anyway in many cases, so that's not a permanent arrangement.  One can always use a portfolio with some bonds because CB contributions happen the following year, while the 401k contributions are made throughout the year, but even in that case I would rebalance using incoming contributions.  In a participant-directed plan, model portfolios are indeed rebalanced by selling and buying at a specific date once a year.

Actually, I don't like pooled plans in the case when there are many partners.  It works when there is a single owner, or a couple who are owners.  It might work for two partners with similar goals/interests, and even with 3 partners who are all young and/or don't have much time or experience dealing with investments.  For multiple partners with many employees I do prefer a participant-directed plan, and when there is a CB plan there are model portfolios that are allocated with a CB plan in mind.  Partners might be savvy enough to adjust this themselves, but individual employees are definitely not.  Also, CB contributions can sometimes be extremely large, and if the plan is relatively new, you'll quickly find that your CB bond allocation is very significant (especially if the owners are older and have a relatively new 401k plan with not much assets).  However, if you do have some 401k assets already, chances are that things will be relatively in good balance, and in fact, having a higher CB plan contribution that is in bonds is a perfect way to de-risk your portfolio as you are getting closer to retirement, so I'm totally cool with CB bond allocation increasing.

Another thing to think about is how to select the crediting rate correctly.  Many plans used something between 5% and 6.5% and had to allocate significant portion of the assets to stocks.  If your plan is only going to be around for 3-5 years, you don't have 7 years to make up the shortfall if the portfolio is heavily in stocks, so that's one thing that hit many plans very hard in the recent years.  Before you implement this plan, please get a very good illustration based on your demographics of what your employer liability would be, including all of the eligible employees, because many people sign the contract without realizing that older employees can make CB plans extremely expensive.

 

 

[AlexDDS]

I think 5% is too aggressive ,30-year Treasury rate is close to be realistic . Also a good taxable account would be helpful to cover shortfalls (23.8% vs 39.6 tax rate ). Its not a DIY , Vanguard institutional website has a lot of information about fixed income .

[litovskyassetmanagement]

AlexDDS wrote:

I think 5% is too aggressive ,30-year Treasury rate is close to be realistic . Also a good taxable account would be helpful to cover shortfalls (23.8% vs 39.6 tax rate ). Its not a DIY , Vanguard institutional website has a lot of information about fixed income .

Click to expand...

Right, what I meant to say was that anyone who manages investments for a pooled account is a discretionary fiduciary, and that's absolutely the highest liability imaginable, that's why very few advisers touch pooled accounts as ERISA 3(38) discretionary fiduciaries.  The liability is way too great for that - in a participant-directed plan on the other hand, the liability is significantly lower because no participant money is handled by the fiduciary. Even still, participant advice should not be provided by the plan sponsor because that's extra liability.  Things like selection of the investment lineup is a fiduciary action, so if you do that as the plan sponsor, you are very much liable for that.  Yes, you can look at Vanguard institutional website all you like, but you have unlimited liability as the plan sponsor for any mistakes you make. That's exactly why I work with an ERISA attorney because things can get rather complex, so plans such as custom-designed 401k and CB are not something that you should manage yourself as the plan sponsor.  The TPA and fiduciary adviser have to shoulder the responsibility of running your plan, and for a small practice there are just too many moving parts for plan sponsors to worry about.

I often see posts from plan sponsors with an existing plan about some plan issue or other, and this tells me that the TPA and adviser are both absentee if the plan sponsor has to come to a forum to 'crowd-source' the answers to issues that should have been proactively handled by their providers in the first place. Also, if a TPA screws up, you are fully liable as well, so it does help to have top notch people on your team with a CB plan.  I hear stories all the time about DB plans that are messed up for one reason or another.  The 401k plan by itself is complex enough to require quality support, so that's why I don't recommend having a CB plan unless you can have the best team in place to manage it.

[KarenPhD]

We don’t want to sound like an advertisement — or self-promote — but this is exactly what we do.

We are a TPA that specializes in defined benefit and cash balance plans for small practices – up to about 12 participants. Based on your question, it seems like you have a 401(k) profit sharing plan that is already compatible with the cash balance plan that we set up, but we would need to get a copy of the adoption agreement to make sure. We can handle the custom-designed plans that are required in your situation as that is the heart of our business.

Our services include the actuarial review so there are not those huge fees mentioned by the previous responder. We charge
$2,250 plus $100 per participant in excess of 5 participants for the plan design and document fee (one time). The cost to administer the cash balance plan is $2,850 plus $100 per participant in excess of 5 participants each year. There is also an annual non-discrimination testing charge of $650 or $850 depending upon whether or not we administer the 401(k). The minimal commitment period is 3-5 years and the plan could be terminated after that. It is possible to transfer the assets to a 401(k) profit sharing plan, but the participants in the plan will make their own decision on how to take their money out and what to do with it. The cost of the cash balance plan termination is $1,500. We are investment neutral – lots of our clients use Vanguard. And, we charge no fees based on the value of the plan.
If you want us to run a free illustration (http://www.dedicated-db.com/) for you, feel free to contact us. We aren’t trying to selling you anything, but give you helpful info so you can make the best decision.

[AlexDDS]

Any experience with AmericasBest401K cash balance plan services ?1750$ plan design, 1800$ plan administration, 0.1% LT trust custodian fee ,0.3% fiduciary fee?   It looks like they are relatively new player ,started by former Personal Capital member ?

[litovskyassetmanagement]

AlexDDS wrote:

Any experience with AmericasBest401K cash balance plan services ?1750$ plan design, 1800$ plan administration, 0.1% LT trust custodian fee ,0.3% fiduciary fee?   It looks like they are relatively new player ,started by former Personal Capital member ?

Click to expand...

Like I mentioned above, if you go to a TPA who sells retirement plans, they'll sell you a plan.  Will that be the best solution? Who knows - they are not obligated by law to act in your best interest.  By the way, the 'fiduciary fee' applies to the 401k plan.  Will they take discretionary fiduciary liability over the Cash Balance plan?  Most likely no because this is a single pooled account.  They will gladly give you investments to manage, but you might have to manage these yourself or hire a discretionary 3(38) to manage them.  Very few firms will take full discretion over your investments.

This 'fiduciary' is not independent and they are simply there to rubber-stamp the investment lineup, nothing more.  You will never talk to them, and they will not work directly with you to help you set up your plans in the most cost-effective way possible with the best possible options and services.

These are all cookie-cutter set-ups.  They might be 'low cost' until you find out that you are not going to get the best service your plan requires.  Also, any asset-based fees are going to add up huge. With a 0.4% in AUM fees, the cost will be quite high given that you'll accumulate as much as $2.5M in that plan.  You do not want to pay ANY asset-based fees for your plans, and that's very much possible provided that you work with someone who is not going to sell you anything. Also, you have to find out about termination fees.

What you want is a separate standalone TPA and a separate independent fiduciary (discretionary ERISA 3(38)) who will work with you to make sure you are getting the best plan for your practice.  Bundled platforms are not the way to go, and working with just a TPA is also not the way to go - who will be watching the TPA?  They are not financial planners and their job is to provide plan design and administration, but if you do not know how to communicate your needs, the TPA will simply have to make lots of assumptions.  Nor are they equipped to answer specific questions that pertain to your individual financial situation, as that requires doing actual math for you.

With Cash Balance plans, you will need to do a lot of modeling and calculations.  How much should you contribute given your finances?  What do you do when a CB plan is terminated? How do you set up your 401k plan in the meanwhile?  Should you maybe do some in-plan Roth conversions as you make CB contributions?  How should you manage your overall investment portfolio? Lots of questions to which the TPA will have no answer (or will not provide  one because they are not your financial advisers and they do not have to act in your best interest).  Thus, #1 thing to do is to find yourself a real fiduciary who will work directly for you in assisting with the plan design, architecture and set-up.  As always, there is no free lunch in this game - you will get what you pay for, and not having the best advice will eventually cost you.

[AlexDDS]

Kon Litovsky wrote:

AlexDDS wrote:

Any experience with AmericasBest401K cash balance plan services ?1750$ plan design, 1800$ plan administration, 0.1% LT trust custodian fee ,0.3% fiduciary fee?   It looks like they are relatively new player ,started by former Personal Capital member ?

Click to expand…

 

With Cash Balance plans, you will need to do a lot of modeling and calculations.  How much should you contribute given your finances?  What do you do when a CB plan is terminated? How do you set up your 401k plan in the meanwhile?  Should you maybe do some in-plan Roth conversions as you make CB contributions?  How should you manage your overall investment portfolio? Lots of questions to which the TPA will have no answer (or will not provide  one because they are not your financial advisers and they do not have to act in your best interest).  Thus, #1 thing to do is to find yourself a real fiduciary who will work directly for you in assisting with the plan design, architecture and set-up.  As always, there is no free lunch in this game – you will get what you pay for, and not having the best advice will eventually cost you.

Click to expand...

As a practice owner, I have to do a lot of modeling and calculations almost every month,its not just like once or twice a year meeting with financial adviser .

I dont think its a good idea to do in-plan Roth conversions living in NY state. What scenario your modeling and calculations can produce for 15 y time frame ,33%tax rate for 100k invested into VBIAX in Roth vs 100k invested into VBIAX in 401k +33k invested in taxable account into VTMFX ,20-25% withdrawal tax rate?

[litovskyassetmanagement]

AlexDDS wrote:

Kon Litovsky wrote:

AlexDDS wrote:

Any experience with AmericasBest401K cash balance plan services ?1750$ plan design, 1800$ plan administration, 0.1% LT trust custodian fee ,0.3% fiduciary fee?   It looks like they are relatively new player ,started by former Personal Capital member ?

Click to expand…

 

With Cash Balance plans, you will need to do a lot of modeling and calculations.  How much should you contribute given your finances?  What do you do when a CB plan is terminated? How do you set up your 401k plan in the meanwhile?  Should you maybe do some in-plan Roth conversions as you make CB contributions?  How should you manage your overall investment portfolio? Lots of questions to which the TPA will have no answer (or will not provide  one because they are not your financial advisers and they do not have to act in your best interest).  Thus, #1 thing to do is to find yourself a real fiduciary who will work directly for you in assisting with the plan design, architecture and set-up.  As always, there is no free lunch in this game – you will get what you pay for, and not having the best advice will eventually cost you.

Click to expand…

As a practice owner, I have to do a lot of modeling and calculations almost every month,its not just like once or twice a year meeting with financial adviser .

I dont think its a good idea to do in-plan Roth conversions living in NY state. What scenario your modeling and calculations can produce for 15 y time frame ,33%tax rate for 100k invested into VBIAX in Roth vs 100k invested into VBIAX in 401k +33k invested in taxable account into VTMFX ,20-25% withdrawal tax rate?

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Here's one thing to note.  Your deferrals are made off of your highest bracket, while in retirement your withdrawals are taxed at an average rate, so even if you are in the same bracket in retirement, there is a tax differential between accumulation and distribution phases.  That said, the success of the Roth conversion strategy depends on multiple factors, including your investment return, years in retirement, tax rates now vs. retirement, etc. In some cases it is definitely worth to prepay your taxes, in other cases it might not be worth it.

So if you retire at 60 and convert for 10 years until you have to take RMDs, this is one analysis that shows the difference using rather conservative assumptions about investment growth (below).  For tiny amounts Roth conversions are inconsequential, but when you start talking about big numbers, RMDs can get pretty pricey going forward.  In this analysis I'm comparing three scenarios, and 401k with Roth conversion tax-wise is on par with investing after-tax - a result one might not expect (one can actually optimize each scenario for better results, and that's what I tried doing with this one).  Again, lots of different assumptions are involved and I can tweak these to see how the numbers change, but change they will for sure, so I don't like to make blanket statements about whether a particular strategy works or not without doing an analysis for a specific case.

	401k plus after tax	After tax	401k plus after tax with Roth conversion
Starting Amounts	$5,848,909	$5,246,471	$5,848,909
Total Amount Saved	$8,132,166	$10,548,090	$11,766,031
Roth	$0	$0	$10,702,212
Tax-deferred	$1,845,824	$0	$142,107
After-tax	$6,286,343	$10,548,090	$921,712
Total Income Distributed	$7,218,767	$5,199,437	$5,197,506
TOTAL ESTATE	$15,350,933	$15,747,527	$16,963,537
Total (estate plus tax)	$16,998,969	$16,530,264	$17,690,041
Total Tax (on distributions)	$1,648,035	$782,737	$726,505
% Tax (Average)	23%	15%	14%
vs. After-tax	($865,298)		$56,232

[AlexDDS]

Did you mean that for 45% tax rate deferral 401k you are paying with 33 % tax rate taxable account for the Roth conversion?

[litovskyassetmanagement]

AlexDDS wrote:

Did you mean that for 45% tax rate deferral 401k you are paying with 33 % tax rate taxable account for the Roth conversion?

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Exactly. The Roth conversion tax is paid for with after-tax money. The amount of after-tax savings can be calculated based on both the Roth conversion and income needs.  This example is for a practice owner who's comfortably maxing out their 401k, and also accumulating the rest in an after-tax account.  A DB plan can also play a role - at retirement it is simply rolled into a 401k plan, and then the Roth conversion can proceed.  I'm also assuming that you are keeping some type of a retirement plan for these assets in retirement - asset protection is a big deal, so careful planning might be required for you to close the practice plan but open a solo 401k for example (you can do some 1099 work prior to full retirement).  Lots of really cool things one can do to save huge money on taxes and create one mega Roth account in the process, but many docs simply lack the knowledge to make this work.  Living a long life can also help, as longevity is a factor in all of this too ;-)