"Sound investing should focus on the growth of deferred compensation plans rather than simply the amount that can be saved in taxes, the 412 (e)(3) plan is ideal for small business owners, with few employees," says Ray Phair, COO Tax Saving Professionals
Vero Beach, Fl (PRWEB) September 22, 2014
The Tax Saving Benefits of 412(e)(3) Plans
Tax Saving Professionals announces new service with big tax benefits with the offering of 412(e) (3) plans. These plans offer larger tax-deductible contributions for the employer over typical deferred compensation plans. Large contributions are allowed because the defined benefit plans are premised upon the guarantees of the annuities and life insurance. These vehicles have a low assumed rate of return so the amount the employer can contribute is allowed to be large. In addition to allowing for the deferral of large amounts of income, 412(e)(3) plan are simple to administer not requiring post set-up and an actuarial annual valuation or certifications.
The Positives and Negatives of 412(e)(3) Plans
Sound investing should focus on the growth of deferred compensation plans rather than simply the amount that can be saved in taxes. To be clear these are in addition to sound tax strategy and investing with the added benefit of tax deferrals while protecting your estate in the event of a death. No net economic benefit is received if the plan allows larger amounts of income to be deferred but only at the cost of lost growth on the income deferred. Other deferred compensation plans, such as a 401(k), the employee’s retirement benefit increases as the performance of the plan investments exceed expectations. The 412(e)(3) Plans are locked into a set rate of return so participants will not receive the benefit of a bull market.
In addition to being conservative investment vehicles, 412(e)(3) Plans have some other negative attributes. 412(e)(3) Plans must meet with the same coverage and nondiscrimination rules that all qualified plans must meet. 412(e)(3) Plans cannot make loans and the company cannot skip a year of funding after establishing the plan. Most importantly, 412(e)(3) Plans are not appropriate deferred compensation plans for individuals with a taxable estate because the death benefit will be part of the decedent’s gross taxable estate.
Who are Candidates for the 412(e)(3) Plans?
The ideal candidate to participate in a 412(e)(3) plan is a small business owner approximately age 50 or older with few employees. The business must be economically stable with consistent annual income in order to make the annual payments the plan will require. The payments cannot be forgiven or deferred for a year in the event the business profits are not as expected. The ideal candidate will be operating a successful small business which can benefit from the deferral of substantial amounts of income. 412(e) (3) Plans are more appropriate for people age 50 or older because the annuity will be for a shorter length of time since the employee is nearer to retirement.
About Tax Saving Professionals
Tax Savings Professionals (http://www.TaxSavingsProfessionals.com) is a national tax consulting organization consisting of tax attorney’s, CPA’s, Enrolled Agents and paralegals. The company has worked with more than 7,000 clients, large and small, from around the country as well as with other members of the financial community, such as financial planners, CPA’s, accountants and others. Tax Savings Professionals has distilled from the IRS tax codes more than 400 tax deductions that are often misunderstood or even unknown by many tax professionals, along with an assortment of proven and time-tested “tax strategies” that when combined help clients save money on their taxes.