Asset Protection with Defined
Benefit Plan & 401(k) Plan

Asset Protection and Tax minimization For Small Business Owners: "Carve Out" Planning

Many people are unaware of the options they will have with qualified plans. Some things can be done to alter the numbers so they are in favor of highly compensated employees. Using carve out planning is one of the great options because it is fully asset protected and will optimize your retirement account and minimize taxes.

All small business owners desire a way to defer a large amount of money into a plan that is qualified while having employees contribute the smallest amount possible.

The Defined Benefit Plan for Small Business Owners

We will assume that the employee or owner wants to contribute more money than is allowed to a traditional 401(k) plan. In the world of qualified plans, the only option that would allow this is a Defined Benefit plan. We will not discuss the option of using a life insurance policy in a Defined Benefit plan, but that is also an option.

A defined Benefit plan will allow any business-owner over the age of 45 to receive sizeable deductions when they contribute into a qualified plan that will be later used for retirement.

One of the main problems surrounding the use of Defined Benefit plans is if the employer has a large number of employees, the plan will usually become price prohibited. This is due to the amount of the required contributions for each employee. If there are more than 5 employees, a Defined Benefit plan may not be a good option because it will be too costly to implement.

Carve-Out Planning

The term "carve-out planning" sounds appealing to most employees. It makes it sound as if the employee will have the ability to have the advantage over the employer and sometimes, that is what will actually happen.

Carve-out planning involves implementing a Defined Benefit plan for a particular client as well as a 401(k) plan for employees. There will be some employees that will go into the Defined Benefit plan while others will choose the 401(k) plan. There are many advisors that will not be aware that employees can actually have both of these plans. Having the best of both worlds is what Defined benefit plans are all about.

How to Implement the Defined Benefit Plan and 401(k) to Protect Assets

The key to success with this type of planning is to place the employee/owner in the Defined Benefit plan as well as some of the younger employees. Then it is ideal to place the older employees in the 401(k) plan. This is beneficial because older employees will require the employer to make higher contributions to the Defined Benefit plan, so the 401(k) will cost employers less money in the long run while still offering a retirement plan to employees.

To reiterate, using carve out planning is one of the great options because it is fully asset protected and will optimize your retirement account and minimize taxes. It is difficult to give detailed explanations on how these plans actually work. The best way to learn of how Defined Benefit plans can be beneficial to you and your clients is often through examples. Click here to read an example of Carve Out Planning.

Estate Street Partners, LLC
Uncompromising, Alternative and Exclusive Estate Planning & Wealth Management for an Accelerated Chartered Roadmap to Financial Success
71 Commercial Street #150, Boston, MA 02109
toll-free: 888-93-ULTRA (888-938-5872)
tel: +1.508.429.0011 fax: +1.508.429.3034
Only by appointment: 2235 E. Flamingo Road, Suite 201-G, Las Vegas NV 89119
toll-free: 888-93ULTRA (888-938-5872)
tel: 702.615.7616 fax: 702.796.6694