Use the Defined Benefit Plan Calculator to receive a FREE calculation. Use the sliders to select your age, your income and how long you have been in business. If you are married and your spouse is an employee of your business, provide the same information for your spouse. Employing your spouse increases your possible Defined Benefit deduction.
The Defined Benefit Plan Calculator will compute figures in real-time as you move the sliders. This functionality shows you how the numbers change for each input. In addition, you can run several scenarios quickly, because you don't have to "submit" your information each time you change your data.
A note on income, for Corporations and LLCs taxed as Corporations, input your W-2 wage. For partnerships and sole proprietors, input your earned income found on your K-1 or Schedule C, respectively.
The calculator provides two figures:
1. Level Contribution: The estimated level Defined Benefit contribution for the next 10 years.
2. Maximum Contribution: The estimated maximum amount that can be contributed in the first year. The maximum contribution calculates a "front-loaded" figure. This option results in lower contributions in future years. "Over-contributing" in the early years may make sense when a larger deduction is needed up-front or a longer compounding period for "more dollars" is desired.
If you have any questions, please contact us at (480) 795-8256 or at firstname.lastname@example.org.
The Defined Benefit Plan Calculator computes your possible deductible contribution. How do the inputs impact your calculation?
1. Age: In general, the closer you are to retirement age, the higher your allowable contribution. This is because for a given benefit level, higher Defined Benefit contributions are required when the horizon is shorter.
2. Your Income: Defined Benefit limits are adjusted for income. In 2019, a 3-year average income of $225,000 would provide the full maximum benefit. A lower average income may reduce the Defined Benefit limit. However, this may not necessarily be the case. It will depend on the level of income and how long the owner has worked for the business.
3. Years with Business: As mentioned, the number of years in the business may impact your Defined Benefit Plan limit when average compensation is below $225,000 in 2019.
4. Is Your Spouse an Employee in the Business?: By having your spouse as an employee of the business, you can potentially double your deductible contribution amount. The increase in the allowable contribution will depend on your spouse's age, income and years with the business.
Now that you know how the inputs impact the Defined Benefit Plan calculation, here are some ways you can increase your maximum deductible contribution:
1. Increase Your Income: Increasing your income will provide you a higher limit. This is most easily done when you are taxed as a Corporation, because higher W-2 wages will directly impact your contribution limit. However, you will need to weigh the larger income tax deduction against higher payroll taxes.
2. Employ Your Spouse in the Business: As mentioned, if your spouse is an employee in the business, you can potentially double your deduction. In practice, the spouse may receive a lower wage than the primary owner of the company. However, depending on the spouse's age and income level, the Defined Benefit deduction can be significantly increased.
3. Add a 401(k) Plan: By adding a 401(k) Plan, you can defer and deduct an additional $25,000 per person if you are age 50 or older. In addition, Profit Sharing allocations are permitted.
In general, employees will need to be covered in the Defined Benefit Plan, although typically at a much lower level. The calculator does not quantify the cost of employee benefits. However, depending on the ages and income levels of your employees, the cost of benefits relative to tax savings may make good financial sense.
We can calculate your deduction and the cost of employee benefits if you contact us at (480) 795-8256 or at email@example.com.
* Figures provided in the calculator are first-year contribution estimates and for informational purposes only. Contributions in subsequent years will vary depending on investment returns, future salaries and any legislation changes. The calculator is not a substitute for professional advice. Actual deductible amounts may vary based on your situation.