One Person Defined Benefit Plan

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comeinvest
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Re: One Person Defined Benefit Plan

Post by comeinvest » Mon Dec 15, 2014 5:22 am

Can anyone here recommend a TPA for a one-person defined benefit plan, with reasonable annual fees? Thanks in advance!

imoldfella
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Re: One Person Defined Benefit Plan

Post by imoldfella » Fri Dec 26, 2014 5:59 pm

Would you be willing to share why you picked the tpa over schwab? I am facing a very similar decision, and was leaning towards schwab.

bobby21
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Re: One Person Defined Benefit Plan

Post by bobby21 » Wed Jan 07, 2015 4:29 pm

I just signed up with the Schwab plan. Looks like a no brainer to me. Hope to run it for 5 years or till age 55 (I am 48 now). Anyone run it for less than 5 years and close the plan? Any consequences?

dhodson
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Re: One Person Defined Benefit Plan

Post by dhodson » Wed Jan 07, 2015 5:03 pm

There certainly can be

My TPA says you always need a reason for closing especially if under 10 years.

The deductions would be disallowed and you would pay fines, taxes, penalties.

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Thu Jan 08, 2015 2:17 pm

I chose the TPA because it allowed me to invest somewhere other than Schwab, and because it seemed easier to combine the DBP with a 401-K.

ubermax
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Location: Connecticut

Re: One Person Defined Benefit Plan

Post by ubermax » Fri Jan 09, 2015 8:00 am

comeinvest wrote:Can anyone here recommend a TPA for a one-person defined benefit plan, with reasonable annual fees? Thanks in advance!
To my knowledge they generally don't make house calls but if you could reveal where you live , city & state , maybe someone could suggest a firm ; alternatively maybe Dhodson could PM you with his TPA and where the firm is located , that could also work out.

dhodson
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Re: One Person Defined Benefit Plan

Post by dhodson » Fri Jan 09, 2015 8:23 am

I use alliance pension consultants in Illinois

Schwab referred me to them bc I had a complicated situation

I'm satisfied with their work

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Fri Jan 09, 2015 10:15 pm

I just recently started with "One Person Plus." They are on the west coast, but can do all of the work via phone, internet, etc. I started with them based on multiple discussions with their staff, but don't really have enough experience with them to make a real recommendation.

bobby21
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Re: One Person Defined Benefit Plan

Post by bobby21 » Tue Jan 27, 2015 9:02 pm

Is it ok to buy individual stocks in the DB plan? Or do we just buy mutual funds? I am going to fund my Schwab account in the next month or so for the first time.

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Tue Jan 27, 2015 9:06 pm

I believe it is just like any other investment account. Mine is at Vanguard- I expect to use mutual funds only, but I imagine I could purchase individual stocks if I wanted to do so. A quick phone call to Schwab would answer that one for you.

randomguy
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Re: One Person Defined Benefit Plan

Post by randomguy » Tue Jan 27, 2015 9:14 pm

dhodson wrote:There certainly can be

My TPA says you always need a reason for closing especially if under 10 years.

The deductions would be disallowed and you would pay fines, taxes, penalties.
You need a reason. My understanding is that retirement or closing the business are both legit. Large income drops ( you were making 500k and it drops to 250k) also work but you are getting into sketchy territory (how big does the drop need to be). Either way you have to be very careful not to have the plan overfunded at that time because the penalties are brutual (some thing like 80%).

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Tue Jan 27, 2015 9:26 pm

randomguy wrote: Either way you have to be very careful not to have the plan overfunded at that time because the penalties are brutual (some thing like 80%).
I guess that is something you would have to be careful about if you use the strategy of maximally funding in some years so that you can have occasional years where you only fund your 401k (when your contribution range for the defined benefit plan includes "0"). Perhaps it would be better to just contribute in the middle of the range most of the time.

dhodson
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Re: One Person Defined Benefit Plan

Post by dhodson » Tue Jan 27, 2015 10:45 pm

bobby21 wrote:Is it ok to buy individual stocks in the DB plan? Or do we just buy mutual funds? I am going to fund my Schwab account in the next month or so for the first time.
I have individual stocks in mine as well

dhodson
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Re: One Person Defined Benefit Plan

Post by dhodson » Tue Jan 27, 2015 10:47 pm

bkinder wrote:
randomguy wrote: Either way you have to be very careful not to have the plan overfunded at that time because the penalties are brutual (some thing like 80%).
I guess that is something you would have to be careful about if you use the strategy of maximally funding in some years so that you can have occasional years where you only fund your 401k (when your contribution range for the defined benefit plan includes "0"). Perhaps it would be better to just contribute in the middle of the range most of the time.
You have to be sure you can keep the plan open until it gets back in range. If you are in control of the plan than that shouldn't be too hard. It could be an issue if you are beyond the maximum benefit expected at retirement.

bobby21
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Re: One Person Defined Benefit Plan

Post by bobby21 » Wed Jan 28, 2015 5:53 am

Has anyone frozen their plan in rough times? My concern while opening the plan was that income may drop suddenly, and I may not be able to contribute. Or I may have to do the same job as an employee, but not as a S corp, in which case I could suspend the plan by freezing it, and contribute nothing for a few years, till the S corp can be revived again.

Worst case, I would have to close the S corp and DB plan. I was told the IRS considers that a good reason to stop the DB plan, and not come after you.

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Wed Jan 28, 2015 10:09 am

bobby21 wrote:Has anyone frozen their plan in rough times?
This "freezing" idea has not come up in any of my discussions with my TPA or any of my reading. It sounds like precisely what I would think the IRS would like to avoid, and I am not sure that wouldn't paint a target on your back. I would hope you could get at least 5 years in before any of this would happen!

dhodson
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Re: One Person Defined Benefit Plan

Post by dhodson » Wed Jan 28, 2015 1:09 pm

bkinder wrote:
ubermax wrote:OK , so it'll be K with Vanguard & DB with Schwab ? Don't know anything about the back-door Roth but I'm curious to know from Dhodson why it works easier with the K plan rather than a SEP ?
I've decided to use a third party administrator for both- and invest the money at Vanguard.

Brian

Keep in mind I'm just a guy who has one of these things and not some financial advisor but with the 401k profit sharing then you could in addition do a backdoor Roth ira.

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Sun Feb 08, 2015 9:35 pm

Quick follow-up: One Person Plus, located in Glendale, CA, has been great, despite my living in GA, if anyone is looking for a TPA to set up a Defined Benefit Plan and a 401k. I just received their startup kit for 2015, and have made my first contributions. They are very professional, simple to do, and they send the plan documents in hard Copy or on a thumb drive, depending on whether signatures are needed. I am impressed with how straightforward this all has been.

My contributions will be invested at Vanguard at all of my favorite funds.

northernrun
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Re: One Person Defined Benefit Plan

Post by northernrun » Fri Jul 13, 2018 10:41 pm

Gasdoc,

I am a fam doc consider my options for a solo DBP.
Could you update me on your experiences after 3-4 years of contributions?
Have your contributions and returns fluctuated markedly?
Are you satisfied with your result?
I noted you went for Vangurad over Schwab, has that worked out well?

Thank you,

JustLearning321
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Re: One Person Defined Benefit Plan

Post by JustLearning321 » Fri Jul 13, 2018 11:59 pm

Hi northernrun,

I have be using a solo DB plan through Schwab (admin+brokerage) for about 4 years.

It has been a great experience. My CPA is amazed about the level of deferral for my not-so-high income.

There have been a few learnings:

1) The range of annual contribution limits can grow very wide. I front loaded the contributions so the min contribution is fairly low now.
2) If your goal is to maximize your ability to defer taxes, then you may not want to invest in high return investments in the DB account. (If your investments do too well, it can limit your contributions.) Put the high return investments in other accounts.
3) If you contribute to a 401k plan at the same time, your annual admin fees may go up. (They did for me.)
4) Do not over fund the DB Plan to avoid high penalties
5) My plan does not allow long option positions.
6) My plan does not allow Prime Money Market Funds (Only Gov't Money Market Funds).
7) If your annual DB contribution pulls your W2 income way down, it may be helpful to consider taking some income as a dividend to lower your taxes further.
8) It can be hard to qualify to refinance a mortgage when your income drops substantially from large DB contributions. (I was successful, but I felt that the loan officer had the right experience to convince the underwriter.)
9) It can be hard to qualify to lease a car when your income drops substantially from large DB contributions.

I am only an occasional reader at Bogleheads. I was stopping by to research fixed income investments for use in the DB plan to avoid overfunding. I still have about one more year of large contributions to go, if my investments do not drop substantially. I plan to go fixed income for the last two years.

Good luck.

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gasdoc
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Re: One Person Defined Benefit Plan

Post by gasdoc » Sat Jul 14, 2018 1:59 pm

northernrun wrote:
Fri Jul 13, 2018 10:41 pm
Gasdoc,

I am a fam doc consider my options for a solo DBP.
Could you update me on your experiences after 3-4 years of contributions?
Have your contributions and returns fluctuated markedly?
Are you satisfied with your result?
I noted you went for Vangurad over Schwab, has that worked out well?

Thank you,
northernrun,
My experience has been fantastic. Again, I am using a company called "One Person Plus, out of California." They are the third party administrator, and I invest the actual funds at Vanguard. I have consistently contributed around $200K in the defined benefit plan, in addition to my 401K, also through the same company. It has been very easy, requiring only a few minutes of paperwork a couple of times per year. I am invested only in bonds in the defined benefit plan so that high returns do not limit my contributions in the future. I expect that my high retirement plan contributions will be a real asset under the new tax laws as it will reduce my taxable income, putting me within range of the 20% reduction for service industry people with joint incomes under $315K. (I am meeting with my CPA in a week or so to discuss my strategies for optimizing my claimed W-2 income and my retirement contributions for the greatest tax benefit.) Regarding my choice of One Person Plus instead of Schwab, I think the choices were better at VAnguard.

gasdoc

northernrun
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Joined: Thu Feb 26, 2015 9:38 pm

Re: One Person Defined Benefit Plan

Post by northernrun » Mon Jul 16, 2018 6:37 pm

Thank you Gentlemen. Glad to hear this seems like a viable option.
Much Appreciated,

BusterMcTaco
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Re: One Person Defined Benefit Plan

Post by BusterMcTaco » Wed Jul 25, 2018 2:22 am

Gasdoc, ballpark, how much do fees run? Low 4 figures annually? Was set up more expensive? I'm considering it for the same section 199A reason. I'm 35 so it may be too risky, I'm only now starting to read about DBPs.

Edit: Nevermind, I remembered how to Google ;)
https://www.dedicated-db.com/fee-schedule/

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