Miriam ran a successful business and she had a retirement plan.
Her husband James made about $125K/year selling collectibles on eBay.
They didn’t really need James’s “hobby income” so they wanted to shelter as much of it as they could.
Gina, his accountant put him in an SEP IRA which shielded 20% ($25,000) from taxes. At James’s request, she called us to ask if there was a better way.
“In fact there is. We can use a cash balance pension plan to shelter 100% of that income!”
Gina gasped. “Are you really telling me we can put the full $125K into a retirement plan and get his taxable income down to zero?”
“Yes, we can. And since he does not need any of that income it makes sense to shelter all of it.”
“Hmm,” said Gina. “Can that be done for all of my clients in similar situations?”
“It’s not black and white. It depends on the age and income of the spouse. However, I can say for certain that the taxable savings will be significantly larger than what can be achieved in a SEP IRA.”
That call not helped Gina get James into a plan that delivered maximum results, and it kicked off a new relationship with yet another one of the many CPA firms who see the benefits of collaborating with a Professional Retirement Plan Consultant.