We partner with advisors who provide financial and tax consulting for these executives. In the past, these executives have contributed to SEPs based on their side income, but contributions were maxing out at $66,000. A OnePersonPlus® Defined Benefit plan allows the highest retirement plan contributions for individuals with this type of self-employment income.
Donald, age 65, has had board income since 2008. He maxed out his SEP contribution each year and wanted to do more. In 2023, his advisor helped him open a Defined Benefit plan:
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2023 Side Income
$345,000
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Max SEP Contribution
$66,000
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Actual 2023 DB Contribution
$324,600
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Estimated Annual Tax Savings
$120,100
— Combined marginal tax of 37%.
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Estimated DB Accumulation at 70
$1.79 Million
— Five Years, 5%-7% return
Susan, age 56, has $200,000 in sole proprietor income for the past several years from Board of Director fees and speeches (after paying self-employment taxes) and plans to roll off the Board at age 62. We designed Susan a Defined Benefit plan for six years.
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Annual board fees:
$200,000
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2023 DB contribution:
$191,700
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Estimated Tax Savings at 37% :
$70,930
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Projected DB accumulation:
$1.43 million
Special Considerations for Board Directors
- Payment for board service can come in a variety of forms: cash, stock option credit, and stock options. However, the only income that can be considered for Defined Benefit purposes is that which is taxable in the current year.
- Contribution to a Defined Benefit plan that is based upon board fee compensation can be enhanced by the addition of a Solo 401(k). However, if the director is still working for another company into which he/she is deferring salary, deferrals cannot be duplicated. The annual limit of $22,500, for Solo (k) on salary deferrals cannot be exceeded.
- If you are on multiple boards, income can be aggregated for plan purposes.