1. Retirement Plans Strategies: Post Tax Cut and Jobs Act
Jeffrey A Brown JD, LLM, QPA, ERPA
Grant E. Brown CPC, ERPA,TGPC, CFP®
(401)
Qualified
Retirement Plans Strategies:
Post Tax Cut and Jobs Act
May 10, 2019

2. Overview: Plan design to save for business owners
Qualified Business Income (QBI deduction)
Changes to hardship/Loan provisions/Limits

3. Which approach is better?

4. DB Plans: For Super Size Deductions
Defined Benefit and now Cash Balance Plans are alive and well for sole proprietors and small business owners
Tax efficient way to shelter significant money.
Example: For individual of age 52, they can get deduction of $200,000 and earn benefit of around $170,000. The maximum lump sum is around $2,800,000 at age 62.

5. 401(k) Profit Sharing Plan
2018 Comparable Limits
Age
401(k) Profit Sharing Plan
DB or Cash Balance
TOTAL
Tax Savings*
60-65
$61,000
$280,000
$341,00
$136,400
55-59
$215,000
$276,000
$110,400
50-54
$170,000
$231,000
$92,400
45-49
$55,000
$130,000
$185,000
$74,000
40-44
$100,000
$155,000
$62,000
35-39
$78,000
$133,000
$53,200
*taxes 40% tax bracket

6. Funding $ Age $2.8 mil @ age 62 Max Line Min Line
(lump sum of $18,333/month) $
Max Line
Min Line
Age

7. Ideal candidates…

8. Save EVEN MORE for an owner, while limiting costs for providing staff benefitsDB
401(k)
Cash Balance
Cash Balance/ “Hybrid Plans” are Defined Benefit Plans
Account statement appears more like a 401(k)
Pooled trust
Actuary Required

9. How CB Plans Work Name Age Comp 401(k) PS Cash Balance Total Owner 160
$265,000
$24,000
$35,000
$210,000
$269,000
Owner 2 55
$200,000
$120,000
$179,000
Staff 1 46
$100,000
Staff 9 26
$38,000
$7, $7,750
$2, $3,410
$750
STAFF TOTALS: $29, $6, $36,710
PLAN TOTALS: $99,960 $336,750 $484,710
Percent of Contribution for Owners: 92%

10. §199A---Limits on QBI Deduction
1. Can’t exceed 20% of taxable income
2. wage & property limitation may apply if income above certain threshold ($415k and $207.5k)
3. If taxable income “too high” AND in a (SSTB) Specified Service Trade or Business deduction is lost entirely. Phaseout begins at ($315k and $157.5K)

11. Limit #1 Lesser of 20% of QBI 20% of taxable income
Single Sole Prop with $100K of income (no other inc)
$20%*$100K QBI=$20k
20%* ($100k-12k)=$17.6K

12. Limit #2: wages potentially considered
If taxable income above full phaseout
Deduction is the lesser of:
20% QBI---pass through only (except guaranteed pmt)
20% Taxable Income
GREATER OF
50% of wages paid to all employees (including owner)
25% of wages +2.5% cost basis in depreciable bus prop

13. Limit #3: SSTB
NO Deduction for owner of Specified Service Trade of Business with taxable income over full phase-out!
What is SSTB
-Accounting, Actuarial, Financial Service, Brokerage (but not real estate or insurance), Health, Law, Athletics , Consulting
“any occupation where principal asset is the reputation or skill of the owner”

14. Max Deduction for SSTB QBI is AT LEAST the threshold amount
Taxable income is EXACTLY the threshold amount
MFJ max deduction= $63k (20% x $315k) ~ $15,120 in tax savings (24% marginal tax rate)
All Others maximum deduction= $31,500 (20% x $157,500k) ~ $7,560 in tax savings

15. Strategy #1: Super Size Deduction
Scenario: SSTB has “too much” taxable income
Example: Client files jointly with spouse:
$415,000+ pass-through income from business
Joint taxable income $415,000
is in a “specified service business” and her
taxable income is at the full phase-out level
§199A deduction = $-0-
Federal income tax = $96,629

16. Super Size Deduction (cont.)
Solution: Client makes a $100,000 “Super Size Contribution” to a retirement plan
After additional $100,000 deduction taxable income is reduced to optimum $315,000
§199A deduction increases from $-0- to $63,000
$100,000 deductible retirement plan contribution
generates $163,000 in tax deductions!

17. Strategy #2: ROTHIFY
Scenario: Taxable income lower than QBI and the §199A limitation threshold (deductible retirement contribution not needed to get maximum §199A deduction)
$275,000 QBI from CPA practice—files MFJ
Taxable income $250,000
Client usually contributes $50,000 to a SEP/PSP
QBI deduction without SEP or PSP = $50,000
QBI deduction after $50K contribution = $40,000
Each $1.00 of deductible retirement contribution only reduces taxable income by $.80

18. Rothify (cont.)
Solution: Ben makes a $24,500 Roth 401(k) contribution and an In-Plan Roth Conversion of $25,000 to increase taxable income to equal QBI:
QBI and taxable income now both $275,000
§199A deduction increased to $55,000
$1.00 of Roth 401(k) contribution or In-Plan Roth conversion only “costs” $.80 more in taxable income

19. The Super Backdoor ROTH
Qualified Plan might allow for voluntary non- deductible contributions, which in turn can be converted to a Roth source in non-taxable event
Voluntary Non-Deductible contributions are subject to discrimination testing under IRC 401(m), as matching contributions
Need to file 1099-R
Avoids Deductibility Limit and max QBI deduction

20. What to do?.....
Taxable Income Before Adjusting for Retirement Plan Contribution
SSTB Retirement Contribution
Non-SSTB without wages, so QBI limited
Non-SSTB with Wages, QBI not phased out
<$157,500 Single
<$315,000 MFJ
Rothify
$157,500-$390,000 Single
$315,000-$550,000 MFJ
Super Size Deduction
Super Size
Deduction
>$390,000 Single
>$550,000 MFJ
No change in behavior
Rothify or
Traditional Contrib

21. Loan Rollovers
Have until time of extended tax filing deadline for the year of deemed distribution to pay back loan to an IRA account after terminating employment from a 401k with a loan.

22. New Hardship Rules No more need for taking a loan first
No more 6 month suspension
Can take earnings, Safe Harbor, and QNEC

23. Matching Student Loan Repayment
Make non-elective (match) contributions based on loan repayments made.
Only based on private letter ruling

24. Annual Limits 2018 2019 Compensation $275,000 $280,000 Benefits
Defined Contribution
$55,000 ($61,000)
$56,000 ($62,000)
Defined Benefit
$220,000 annual benefit at retirement age
$225,000 annual benefit at retirement age
401k, 403b, 457
$18,500 ($24,500)
$19,000 ($25,000)
SIMPLE plan
$12,500 ($15,500)
$13,000 ($16,000)
IRA
$5,500 ($6,500)
$6,000 ($7,000)
HCE
$120,000
$125,000
Key
(if officer)
$175,000
$180,000
(if age 50 or older)
Mention IBM work…

26. www.CompPlanning.com 401-223-5555 Grant E. Brown Jeffrey A. Brown
CPC, ERPA, TGPC, CFP®
Jeffrey A. Brown
JD, LLM, QPA, ChFC, ERPA