Building Contractors: New Prospects for Cash Balance Plans

20th Apr 2018

Dedicated Defined Benefit Services, an Ascensus Company

Blue Collar Millionaires

The construction trades are booming – in some states more than others – and with the growth comes potential prospects for your advisory services. Plumbers, Electricians, General Contractors, Roofers, and Painters in the right location are making high incomes, often for the first time. They just might need you to help them to save and invest. Below are three examples of Blue Collar self-employed and small business owners that we have worked with in the past six months because they were seeking tax strategies that would allow them to hold onto more of what they earned:

Electrician + Contractor

An electrician and contractor, age 50, has more work than he can handle for residential and commercial projects in Northern California. He has an S-corp. with his wife and uses 1099 sub-contractors as needed.  In late 2017, we designed a combined defined benefit (DB) and solo 401(k) retirement program into which he and his spouse could make a total deductible contribution of $394,900 for themselves.

W-2 income: $240,000 ($120,000 each)
DB Contribution: $338,500
Solo (k): $56,400

If they keep the plan until they retire at age 62, the DB accumulation alone with exceed $2.9 million total. Contributions to the 401(k) are optional each year.

3 Masons

Three brothers, ages 58, 57, and 53, took over the family masonry business in Ohio and turned it into an S-corp. They only paid themselves ~$56,000 each in W-2 income in 2017 but we were able to give them each a deductible contribution to a Cash Balance plan for the business of ~$100,000.They plan to keep working in the business until they lure in the next generation. In the meantime, they will be adding that $300,000+ annually for their advisor to invest and manage.

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Concrete Business

A married couple in Georgia owns 2 small concrete construction businesses which together have 6 employees. The owners wanted to save more for retirement than they could in their SEP while keeping the cost of employee benefits low. We designed a combined Cash Balance (CB) and a Safe Harbor 401(k) profit sharing retirement program. Here’s how it looks for their business:

W-2 income: Husband: $270,000 Wife: $111,175
CB Contribution: Husband: $81,000 Wife: $81,000 Employees: $0
401(k) Contribution: Husband & Wife each $1000 PS+ $18,000 Deferral
Contribution for Employees: $11,115 PS
95% of Total Contribution for Owners
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Booming in Your Community?

If it’s not obvious who is making money in your community, partner with local CPAs to identify clients in need of new tax strategies.  We’ve created a number of resources to help you open the conversation with CPAs.

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Dedicated Defined Benefit Services provides ongoing sales support and administrative services. We are investment neutral and do not charge asset-based fees. We’re here to help. Contact our plan design consultants to discuss your client’s business situation.

 

 

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