Intro (00:00:00) - Welcome to the modern CPA Success Show, the podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services, and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) - And in this episode we have today, I think we're bringing people a little bit of education and also a resource that can really take advantage of. What were your thoughts? 

Adam (00:00:31) - Well, first of all, it's about tax, which, never really gets me super excited, I'll be honest with you, but, it's the second part of that tax savings. The savings part does. And I think Dave is a great resource, I think for anybody listening. And I think it really, is a great complement to what we do for our clients that we need to know a little bit about stuff and then be able to position subject matter experts in. So, I'm, I was, you know, super excited to talk to him.

Tom (00:00:59) - Yeah. Me too. And he simplified it. And really early on he gives a specific sort of some numbers about here's who it could qualify, here's who would qualify well for these plans. That to me had me immediately thinking, yep, this this client. Yes this client know for sure. So, I hope people will get the same thing out of it. Hope they love it.

Adam (00:01:16) - Yeah, I think they will. 

Tom (00:01:18) - Another episode of the Modern CPA success show. I'm Tom Wadelton. I'm one of the Virtual CFOs at Summit Virtual CFO by Anders, joined by my usual co-host, Adam Hale. Adam, welcome. 

Adam (00:01:28) - Hey Tom. 

Adam (00:01:30) - And we are excited today to have Dave Podell. Dave is the founder of Business Benefit Consultants. Dave, welcome. And I would love, if you don't mind starting just kind of the story of your career and what brought you to us today.

David (00:01:42) - Yeah, So, I started 20 years ago as a Financial Advisor, kind of recreated throughout that time.

David (00:01:49) - We still have a separate advisory firm. I about, I would say close to ten years ago got into this very specific niche of defined benefit cash balance, large deductible tax strategy realm. As an advisor back then, I had the opportunity to do 1 or 2 of these cases with clients. realized at the time when I was trying to get this information that every plan design was different from the next. I also found out at the time that I wasn't getting answers to the questions that I needed. and when I was getting answers, I found out there were a million different options. And I said, if I could figure all this out, puzzle it. We can create a great consulting company around it and decided to go to create this consulting company, go straight down that niche. And now we educate and work So,lely with tax advisors and also Some financial advisors. 

Adam (00:02:52) - Exciting stuff. So, I know everybody's on the edge of their seat.

Adam (00:02:56) - We're talking tax. But this is the fun part of tax because this is the savings. It's tax savings. And I think that it's also important that, you know, even for, you know, the people that maybe are watching this and saying, hey, I don't I can't even spell tax. I don't want to do tax. I think it's really important we talk about this all the time as CFOs. We're not supposed to be everything to everyone. However, we should know people that know just about everything. So, it's really, you know, for us, we try to build kind of a Rolodex of folks that in resources for our clients. So, whether that's attorneys or like these very and because the reality is, is like there's a lot of stuff that we can do or we know a little bit about to be dangerous, but whenever it's time to really step into that, that arena, you want Somebody that that's what they do all day long. And so, Dave, that is you.

Adam (00:03:48) - And that is where like, we should know enough and, you know, hopefully we'll be able to gain enough information today to be a little bit dangerous, to be able to introduce to topic, to be able to qualify which clients would work for this kind of thing. And then of course, then we can say, and we know Dave, and So, happy to make that introduction with your client. You know, I think that's really kind of the purpose. And I think that if you are listening to this and you are looking to be a VCFO or you are a VCFO, it's really important just to kind of have that context. Not in a lot of different spaces, not just in this one particular one. So, 

Tom (00:04:22) - Yeah, I agree. And timing wise, as you mentioned, Adam, So, we do tax of our clients. I don't personally consider myself a tax expert. At the same time, it is So, common when you get to this time of year, especially when someone owes taxes, that they'll come back and say, hey, shouldn't you be doing more to help me save on taxes? This is a really big check that I've written to the IRS.

Tom (00:04:39) - And so, to give a couple of ideas. But if they say that one Sounds really good, cash balance plan, Something like that, I can't. I don't have the skill to help them implement doing that. So,

Adam (00:04:49) - Yeah and Dave, we've got some questions for you just right off the gate because a lot of times and again, just to make a distinction between tax planning and tax projections, we do a lot of tax projections I am not totally in love with tax planning a lot of times because it's the same. You know, people are always like, oh, they're not doing enough tax planning for me. I'm like, well, because it's there's really like the same 15 or 20 big things to do. And you know, like, I don't want to put your kid on the website, you know what I mean? And give them a $2,000. Wait, there's just a bunch of low hanging stuff. But the reason why I'm excited today is because we're talking about the big-ticket items.

Adam (00:05:23) - Now, in order to be in the big-ticket item game, obviously it's going to require cash. You know what I mean? So, the business has to be thrown off profits. We've got to be able to do these kind of things. So, that's qualifying point now. But I mean, whenever we're talking about defined benefit plans and cash balance plans set us up. What is an ideal client look like?

David (00:05:44) - Yeah. So, good. Good points. I mean, these plans are, they add tremendous benefit, from a tax saving standpoint as well as an owner who is maybe behind in their retirement plan and where they want to be. As we know, most businesses, especially small businesses, the most the biggest part of their net worth is in the business. maybe they have a 401, maybe they have profit sharing or some other plan. But this is a way for them to put a significant amount of money away and take a big deduction.

David (00:06:19) - So, they're putting that money away in a pre-tax basis. And most of the way these plans get set up, most of that benefit is geared toward the owner or partners for the taxpayer. Obviously we do have to cover employees if there's employees generally when these plans are combined. And that's why there's all these different designs. The owner and partners are getting the largest portion of that benefit. We generally see anywhere between 85 to 100% going to an ownership. You had asked about who's ideal. Well, yes, there's got to be profits. There has to be cash. a good, mark that I will often use and explain to people is if you can put away $100,000 or more, this is worth looking into. If it's less than that, you're probably fine with what I will call on the shelf traditional 401 maybe profit sharing, type plan. There is complexities to this. There's resources that have to be put together. But I will tell you, we do plenty of plans where people are putting away between half a million and $1 million.

David (00:07:36) - We even have plans above $1 million where they're putting that kind of money away and getting those deductions and not paying taxes on the on those dollars at this point.

Adam (00:07:47) - Okay. I got a lot of questions on that one. So, I get it, $100,000. You got to be willing to part ways with that, you know, for, for a period of time. Maybe this is maybe this is kind of going too far down the road just yet, but, do people then they don't have access to that money? Right? So, that's going to be in a traditional. So, it's not like they're going to be able to loan against that money or do something revisit. Because again, to your point, like a lot of times the business is their number one asset. It's thrown off cash. They're spending it just as fast as they're getting it. They and then of course the tax is hit and that's a big dip for them. But when this money goes into this tax savings vehicle it is kind of locked down until retirement.

Adam (00:08:32) - It's kind of the intent.

David (00:08:34) - Yep. And that's why we do see now we have recently gotten a lot of plans from Some younger clients, in late 20s, early 30s, but generally we see a lot of these plans, people in their 50s. And the reason is because they got they've gotten to a business to a point where the business is it's seasoned, they're comfortable with profits. They're comfortable with what they're taking. it's grown and they just want to be able to pay less in taxes and put away more for themselves. This allows them to do it on a pre-tax basis. Yes, the money is a way till 60, like a traditional retirement plan. Where those assets go, generally and, and there's, there's a lot to this, but they can go in many different, different areas. We've been asked about private equity, real estate, alternatives, certain things that people do not want to put traditional money in the market.

David (00:09:32) - There are ways to direct funds to those areas. There's a lot of caveats and details to that, but the funds can be put in there. So, somebody who, you know, is we get a lot of, investing only in real estate. I only want to be in real estate. They do have that ability. But again, the money is tied up till retirement. It's a retirement plan like a 401. And that's why you're getting such a big benefit for it.

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Tom (00:10:39) - Okay. And you mentioned the 100,000. So, let me just queue on that for one second. So, if I have a business that, you know, like many businesses, one year throws off 200,000, the next year it loses money, the next year it's Something else. Is there an additional qualification of fairly consistent. You have to stay in the game at a certain level, or is it such that you could say, I can contribute one year and turn around the next year and say it's a very different amount and maybe even zero?

David (00:11:01) - Yeah. Great question. So, we only look at designs and work with actuarial designs that are flexible. So, because that's going to be the biggest question that's going to be anyone's objection is if I can put $100,000 away this year, next year I want to know, can I go to zero or can I go to 300,000? And the answer is yes. There is the flexibility we just need throughout the year to be in touch with how that client is doing and what they might want to do for a target funding of the next year.

David (00:11:33) - We have set up plans where Someone had a great year. They want or they want to do a plan for three years. They had a great year. They want to put in a huge amount of money, but the next 2 or 3 years they want to put in zero. There are ways in the designs, and that's why this is not an on the shelf type product. And it's not like well 401. We have these limits. I can put away X amount of dollars and it goes in here. Generally, these plans are combined with a profit-sharing bucket as well as a 401 bucket. So, anyone listening to this is saying well I have a 401, what do I do here? We try to leave that 401 alone. We don't want to disrupt what's in place, but we do want to work around it. It does need to get tested with everything else. We work with about 15 different actuarial designs around the country. They're very different from the next. So, we're trying to find out what is the objective and then how we can get the best possible contribution.

David (00:12:32) - I want to just give an example, because I think that would help on how different these things are. We just had a plan where we went to one actuary who said, I can get Max. This was this person was very young. I could get Max $100,000 in this plan. Went to another one. They had totally different design. Everything was different. They were at 140,000. Couldn't do anything else. We went to a third design and it was 250,000. So, these are completely different from the next. And a lot of times people have gone to an actuary or gone to a TPA. They'll get Something back. We see this a lot and they're like, it doesn't work. I'm only getting, you know, 88%, 93%. I don't want to give anything to employees, or I can't get enough in there. We will Sometimes look at that, go to a different type of design, and you could find a completely different answer in their shot.

Adam (00:13:35) - That's what I was going to ask is because I think sometimes the hesitation too is like, cool, I can put $250,000 away.

Adam (00:13:42) - Oh, but what you mean is I get 175 of that and 75,000 is going to my other team that I already compensate and give bonuses and all this other stuff and do for one match for it's like then then all of a sudden people are a little So, some people are okay with it, So some aren't. I know Tom specifically, we'll talk offline about the specific client here that we might want to introduce the day, but I remember specifically one client that we had at like a 92% rate, right. Like everything was going to him. He only had like 3 or 4 employees. And we're like, hey, this is really cool. And then all of a sudden, like, he had switched people or Something, he'd switched brokers or whoever he was dealing with. And I remember like a year or two later, I just happened to be checking in with the CFO at the time. This is preview, Tom and I was like, wow, there's an awful lot of money going to these other three pretty low waged people.

Adam (00:14:33) - And I'm like, this seems really weird. This is not what I remember. And again, it's plan design. It's whoever's kind of doing that. So, to your point, it Sounds like there's a lot of you have the ability behind the scenes maybe as opposed to like if you go to one broker dealer or Somebody that says, hey, this is my this is who I'm using, it Sounds like you're, your kind of operating. Whereas more you have like a variety of different people. So, if you know, the objective is to maximize the owner's contribution portion, you can kind of toy around with a couple of different design layouts to be able to do that, to be able to maximize that along with the amount that they can put away is that

David (00:15:13)- Yeah, we're also operating. We're also operating in a space that I don't see anyone else operating in, because if you're if somebody has a financial advisor, they can use that advisor. We're happy to we're not coming from this of we our benefit is in is in assets or products or solutions.

David (00:15:33) - We're coming from a consulting standpoint. So, we will go work often we'll get referred by CPA to a client or a financial advisor from I mean from a financial advisor. We'll get referred to the client. We're going through all this. And then when it comes down to where those funds are going, well, you have a relationship. Great. We're going to talk to that person and help them set up the accounts. They're going to manage the money where you had brought up, you know, broker dealers in different places. We're not, coming at this from a, an investment advisory side. This is on a consulting basis. So, we'll get we're getting paid independently, like the TPA. We package all the resources together. So, it's very simple and easy for the client and the tax advisor to understand. And then we're mapping out who does what and who's getting paid for what.

Adam (00:16:26) - That's that is atypical I mean the majority of it is like, you know, obviously there's a lot in the initial design and that kind of piece.

Adam (00:16:35) - But there is always that assets under management kind of aspect of it that you typically see. So, that's pretty cool. If you're kind of independent in terms of your fees as far as the design goes, similar to a TPA. What is that? You know, since we're on the subject there, what does that typically look like from a fee perspective? Because that's the other piece. Sometimes with some of these larger scale plans I'm thinking of, like insurance captives, for instance, you know, insurance captives, similar kind of a thing like, hey, you can put away a ton of money. You know, there's some obvious other risks associated with it. You do have to kind of continually stay at a at a certain pace. But there's big fees associated with doing an insurance captive. How does how does your how does the these are?

David (00:17:18) - These are a lot of resources involved, but the actual fees and cost to set these things up and do them are not significant compared to what those benefits actually are.

David (00:17:30) - So, just for example, and this is a range but on like a solo plan, and I can give you an example of a large one, a doctor who, $700,000 is going away. Solo plan is very detailed. there's a lot of stuff that's going on in there to be able to get that, that kind of money away. But, I think the total fee that he is paying on that is around $4,000 to set it up and $4,000 every year.

Adam (00:18:07) - Gotcha. Okay.

Tom (00:18:08) - Sounds great.

David (00:18:09) - And that includes us TPA, you know, kind of everything that's, you know. Okay. I thought. That's not just us. No, that's kind of a now, if he had. Let's just take that same, same person and let's just say he had 15 employees or ten employees. He's probably going to be between, six and $8,000.

Tom (00:18:35) - Mhm.

David (00:18:36) - You know your point though. That's pretty. That's nowhere close to what I'm talking about when it relates to like doing a, you know, doing you know, captive insurance for, for instance. So, that's it. Yeah.

David (00:18:48) - And to speak to, to kind of compare on, on some other strategies like a captive or anything else that that's out there, I always explain like this is something that's been around forever. This is not something like, you know, captive and not to say anything negative about it, but that there could be it could be looked at or a problem with, you know, you're using a enrolled actuary. it's getting tested every year. There's a lot of compliance. Things are getting filed. And we're also there every year. We're involved in this to make these plans successful. We're not just in on setting it up and disappear. We're very involved in coordinating of resources, gathering documents every year, making sure the compliance work is getting done properly.

David (00:19:31) - All that stuff, making sure we're getting statements and details that we need from the advisor, the tax professional involved. These plans, a lot of times I've heard in the past when I started this is oh, I had that it didn't work or it was such a problem with it or, you know, blow up whatever it was. And I realized in every case it was no one. No one talks to each other. It's impossible to coordinate a TPA actuary, advisor, consultant and tax person like record keeper, all that together. Unless someone's doing that. And that's where we come in.

Adam (00:20:08) - Okay, So, your kind of quarterbacking that whole thing, on the structure side of things like. No, no, I mean, obviously I know it depends if it's solo or whatever, but LLC versus S Corp versus C Corp, no conflicts there with any entity type.

David (00:20:25) - They all work as long as income is pensionable. So, for example, if you only have, you know, real estate, you know, passive income coming in, it's not going to work.

David (00:20:36) - Where in those cases we've seen tax advisors will go there. A lot of times there's a management company and then it works if they're, you know, pulling something out from a possible management company. The structure of the company is irrelevant, but we need income. So, if you're an S Corp and you're taking a W-2 of $50,000 and want to get a whole bunch of money in a plan, a lot of times we're going to come back and say, that's got to go up to a hundred. You're the W-2 and what that wage is, it is part of the calculation on what that contribution is. Now we will try to work with what's there. But if someone's looking for a bigger deduction, a bigger contribution into the plan, then we might oftentimes need to increase that wage that, that, that that owner is taking.

Adam (00:21:28) - Yeah. I'm sure you can kind of counterbalance the additional, you know, FICA tax and show again the value thereafter, you know, tax savings and everything like that.

Adam (00:21:38) - And then tell them, of course, they're going to get a bigger, Social Security check. They should be excited. Yeah, yeah. What about, just kind of switching gears there. What about, like, M&A money? So, do you find that defined benefit plans or cash balance plans, work with, you know, if a client is having an exit, is that a good strategy to, like, do a one-time dump into a bunch of, or is that not effective? You know, they've got a lot of cash coming off and they're just like, hey, what do I do with this? I got a lot of tax. Is there Something I can do with this? Either of those. 

David (00:22:16) - So, the answer is yes. These plans can be set up and then they can be funded with certain dollar amounts. plans could then Sometimes be moved to a different entity.

David (00:22:26) - We do find an owner if they get bought out, they, they often have like an LLC where they'll list as a consultant and still getting income from. but I will give you two examples that we went through in the last, I would say, a year and a half with private equity fund, buying out is, maximizing owners putting in the maximum amount as they possibly can into these plans because it becomes an add back in the valuation. So, they're increasing the value of the business when they're getting it ready, or it's being looked at, because it's showing that if an owner is putting away or partners or putting away an extra $500,000 and they're getting 90% plus of that, it's almost like showing like the owners could like, who's ever buying it? They could pull out; they could pull out additional money. sure. If if that wasn't there. Yeah.

Adam (00:23:26) - Owner advocate for sure. But in terms of like, does it make sense? Like especially if it's structured with heavy capital gains treatment.

Adam (00:23:33) - Does it make sense to do either one of these plans or is it still typically if there's like a big depreciation recapture or ordinary income, how does that.

David (00:23:42) - So, we want to always look at that. And every we have to look at each situation. Because if there's capital gains taxes that are going to be paid and those are going to be a lower rate, then, you know, putting than putting, getting ordinary income in the future, then it might not make sense. Right. We want to figure out the lowest. One of the things when I'm always, speaking on this, I'll always say that with these plans you control the recognition of when you want to pay the taxes. Right? We're putting money in a plan, and you're not. You're putting profits away. You're not recognizing it now, yes, you're going to pay those taxes in the future when you pull money out, which there are other things that can be done around that. that we've worked with the advisors on in doing. So, whether it's Roth conversions, once the plan is shut down, there's some other features and ways to pull money out of the plan on a tax-free basis that get a little bit more complicated.

David (00:24:40) - But there are ways of doing it and also depending on the design. So, you're putting money in right now when you're getting taxed the most on the business that you have. The other thing I want to also bring up is these plans should be in place for around 3 to 5 years. The IRS does not want, you know, these benefit these big deductions and plans put in place and then shut down either later. It doesn't mean you need to fund at the same dollar amounts, but that plan should be open and kept open for around those 3 to 5 years. Now a lot of times, depending on the age there, someone's keeping it even longer. You know, it's going really into retirement, putting significant money away. sometimes it's somebody that's older and, maybe they're going to sell in a few years, maybe they're going to retire, maybe they're going to pass it on to, a child or somebody else that's in the business or a partner. So, but you want to have that plan open for those 3 to 5 years?

Adam (00:25:43) - Yeah, that makes sense.

Adam (00:25:44) - I mean, even aside. But I guess, one big piece that we probably skipped over, like, just thinking about, I, you know, I, I think we've, kind of cornered, like, who the ideal client is, but what we didn't really talk about when we started, Tom was, we were like, hey, we just need to know enough to be dangerous, right? To be able to introduce it. Sure. explain it to me like I'm a fifth grader. What's the difference between a defined benefit plan and a cash balance plan?

David (00:26:12) - Before I do that, as a fifth grader, I'll tell you a 401K, you could put in a certain amount of money, and you might be or might not be maxing it right. Think about this as being able to put away three times, five times ten times that dollar amount. So, think about if you're 401K, instead of allowing you to put in 20 to $30,000 would allow you to put away.

David (00:26:43) - $200,000 $300,000. That's the best way of thinking about how these work in a simple and simple terms. it's also going to. Unlock a whole bunch of tax advantages from the standpoint of, you know, get, get qualifying for ABI or bringing you into a lower bracket, you're removing this income or profits off, cash balance versus defined benefit. They look and feel very much the same. The really two different names, two different formulas, but they do very similar things. As a fifth grader, I will explain that defined benefit we look at and see the most in designs on So,lo plans cash balance. We need to get a little bit more creative based on all the different designs, to get more money to the owner. So, cash balance, in a very simplistic terms, helps increase that percentage to owners when there's other employees we need to test with. This is not always the case. There's a design that we like to use where we don't even need to put employees in the defined benefit plan.

David (00:28:06) - They can get offset and taken care of in the profit-sharing bucket. And then we only keep the owners in the defined benefit plan. So, it's a little bit more of a generous, contribution and profit sharing for the employees, but it's still tests well enough to make the owners get the higher benefit. And that's the key here. It's it's efficiency. It's are we getting the 80, 90, 98% benefit to the taxpayer and. Using maybe a 401 as an actual benefit to the employees. This is more an employee and employer benefit than it is an employee.

Adam (00:28:51) - Okay. Gotcha.

Tom (00:28:52) - So, Dave, if I was talking to a client, getting these two and knowing how similar they are, it sounds like my response to a client that wants to do more and say, there's an opportunity to say there are these two things we should consider with these high deductible plans. I don't think I'm qualified to say, you know, it sounds for you, defined benefit is the one you want to go after.

Tom (00:29:10) - Let's call Dave and see if he can help us. Is that right? We'd be saying, let's go and figure out what works best for you, because, oh yeah, between the two maybe doesn't matter. And I probably don't need to know enough to be able to say it's one of these or the other.

David (00:29:22) - No, this is what you need to know is like that. Does the client, do they have additional profits, additional money that they want to put away? And do they not need those funds and want to pay less taxes? If they want to pay less taxes and they're willing to part with additional money, then we just need to get you. We need the information. We have a link and there's an intake form with questions. very simple. Take about a minute, some census information, and then we'll come back and say, okay, we want to learn a little bit more from you about the client before we go in and to an actual design. And then we will look at a few different designs to figure out what's best fitting.

David (00:30:03) - And then it's and then we make it into it. We turn it into something that's very simple.

Tom (00:30:09) - We make sure I if I can play that back, if I think I've got a client where these works, it sounds like I give you some information. Initially we have discussion or exchange things in email. You're telling me what you think is possible, and then we can pull the client in and you're a little bit prepped for that. It's not just a hand the client off to you and say oh yeah.

David (00:30:26) - Yeah. It's totally yes. It's totally, you know, you're fully involved. It's not we don't want it. We don't want a client actually hand it off to us because we're better. It's a lot easier to go back to you and ask certain questions that they don't know. Anyway. but, yeah, you're fully involved now, we do get some referrals where the tax advisors know this is going to work, knows you know, they're in good hands and they just send us names.

David (00:30:53) - But we you know, we're still keeping that person involved, throughout everything because throughout the year, we still need to know details about the business. are we going to lower the W-2 because we want to put in less. That will help the funding go down to, you know, do we need to raise it because we're going to put in more, how does everything else, everything is connected and corresponds, and it just needs to be done in quarterbacked. And that's what we do. 

Tom (00:31:28) - Okay. I'm curious why more people don't know about this. Why do you think these and maybe. Maybe they're more prevalent than I know. But I'd love to know why this isn't maybe more common knowledge.

David (00:31:36) - I'll tell you two reasons that I see. There's a lot of resources involved. There's complexity. And because of that, people don't know where to go for it. We have seen a lot of situations where they go directly to a TPA or an actuary, and that's fine.

David (00:31:51) - And sometimes those plans really work out well, and they have those plans and everything is great. but they don't know what they don't know. So, there might be a better plan out there or a better design for them or their company that they just now don't know. The other reason is because it visors financial advisors who do know that these things exist. They know that there's also complexities, and it is a lot of work. And if you're not solely specific, specific to it and fully involved in it, you wind up dealing with all the issues and not understanding certain things because it's not your main focus on what you do. Where an advisor. Their main focus is advising and managing money.

Adam (00:32:41) - Yeah. And from our perspective, I mean, you know what? I think this will probably resonate with a lot of people that are helping clients out with the financial side. You know, of course they're frustrated. They're like, why do I owe so, much money in tax? Like, oh, it's because you made $1 million.

Adam (00:32:55) - I made a what? And it's like, you know, So, they don't even realize they made $1 million, you know, and then and then whenever you walk them through like where it went. Well, yeah. 400 of that went to taxes. You took the other 600. Remember the Ferrari bar? I remember the boat you bought. Remember the, you know, the extra money you had to take, you know, that you forget about. And so, whenever it comes to the question, it's like, yes, I can save you money. The question just is, are you willing to part with it? Are you willing to park it Somewhere and not touch it? Are you willing not to buy the extra house, not just buy the extra cars? And to your point, I think that whenever people are 20, 30 and maybe early 40s, they're still like young families and they're still in the height of spending and then, you know, then all of a sudden they get into like mid to late 40s or 50s and they're like, hmm, you know, I haven't even really been maxing out that little 401K that I have.

Adam (00:33:45) - I probably should be thinking bigger, longer term. And so, those conversations have a tendency to come full circle. They don't have those early pieces. But again, even whenever you kind of go to them from a financial advisor perspective, like you said, a lot of times people are like, well, I have a contact and my broker dealer and they're not getting the, you know, I, I liken it a lot to going to like a, going to an Allstate insurance agent. Right. Like, So, you go on no offense to Allstate, but like you go to an Allstate insurance agent, you're only going to get Allstate insurance. Whereas if you go to a broker that has access to 15 AA different insurance companies, they can kind of find the best fit for you and find the best, you know what I mean? So, I think even whenever people do get exposed to it, even if they get past that first, like, oh, big money and I can't play with it.

Adam (00:34:37) - Yep. Nope. It goes away okay, I guess. And then whenever they see the design and if the design falls flat and like I said, 25% of it goes to their team. They're just like, well, that's not kind of what I was thinking either, you know what I mean? So, I think those are those are a lot of the big obstacles. So, I think having a resource like you, Dave, that people can go to like from kind of like that consulting broker relationship where you have all these abilities to play out all these different options and custom fit it for the client. I think that's a huge resource. And this is exactly what we're talking about. Whenever we talk to our CFOs know a little bit to be dangerous, know it exists and know a little bit about it. So, you can kind of help qualify the client, get them prepared for the opportunity. And then you say, and I got a guy, So, I'm going to call Dave. I'll run some numbers.

Adam (00:35:26) - We'll get back you know, I'll get his take on it and then we'll get back to you and set something up. That's typically how I handle all my client relationships with a variety of different things. And I think this is a great example of that.

David (00:35:38) - Yeah. It's a huge value piece that is not being brought up in the main. The main reason is and it's such a good question, the main reason is because somebody doesn't have a trusted resource that they know specializes in doing this. I have heard, you know, a lot of times someone will go to an actuary, they'll use that, then they'll, you know, try to send more clients there. and that's kind of the, the only thing that I've heard outside from, from, you know, us getting, you know, business from doing these things and meeting more people and speaking to them. ah, like I said, our benefit is we can use your advisor, you know, we your advisor can be fully involved in and taking those assets and managing those funds.

David (00:36:26) - If you're doing things on your own and you don't have an advisor because you don't, you know, want somebody, there's a way or, you know, to do that as well. What I will bring up the defined benefit plans. These are not meant to those assets are not supposed to go and get ten, 15, 20% stock market type returns. The 401 portion is good for that defined benefit is a safer bucket. It's you're getting a and I'll always say, you know, you're getting 30 to 40%, on your money to begin with, depending on your tax bracket, just by putting it in this box. but there's a crediting rate of around 5% every year that you're getting on your funds. And the investments really need to keep up with that. So, you're looking for a moderate return, not something that's going to go. Anything that gets ten, 15% can lose 10 or 15% and that can mess with the funding. So, that's why we're kind of in touch with the advisors to or whoever is actually managing that money, whether it's the owner or their advisor on, you know, this is where those assets.

David (00:37:40) - Should probably be from a risk standpoint.

Adam (00:37:44) - You can vary. The risk is what you're saying. But typically you want to you're typically is. So, there's no restrictions there per se. But you're just saying your advice typically is to make them more conservative.

David (00:37:57) - Right. Conservative. Yeah. Moderately conservative I would say because you want to keep up with these, you know, with these, with the crediting rate of that number. Right.

Adam (00:38:07) - And you're typically dealing with people closer to retirement anyway. So, it's not like they're wanting to roll the dice on penny stocks and small cap foreign, you know, all that kind of stuff. So, and you.

David (00:38:20) - Can do all that with the 401. You could even, you know, if you're a solo, you could even do with the profit-sharing funds like but on the DB side, what you don't want to happen is you don't want to have too much money. You don't want to go and make 30% every year for a few years. And now this plan is overfunded just like you don't want to lose all that.

David (00:38:41) - And then you're, you know, the actuary is going, hey, you can't put money in again. I know you want a deduction, but you're stuck. and you got a problem because you put assets in this plan that were high flying.

Tom (00:38:55) - That's good to know in that design. Yeah. Yeah. It's Adam mentioned us having tools. One of the things that we've started doing with our client, not for the very first time, but as we're doing tax planning, our tax director has a list of 15, 20 different tax strategies. And they can run from small, like employing your children or home, the accountability plan or writing off some home expenses. But he'll mention these to clients. And it's often with clients we've worked with for a long time where we haven't been bring up things because we think we know them, and here's a good chance to kind of mention things and kind of give an overview and have them say, are they interested? It also can, I think, can help the being reactive or the one who steps off an airplane and says, hey, I read this, you know, three paragraph article and I want to go do X.

Tom (00:39:36) - And now you're sort of on your heels reacting to something and saying, what about something else? So, I love being able to say certain things, you know, to at this point, you know, kind of how are you feeling about your overall retirement? And if you're hearing not very good, and I'm afraid I can't max out my 401K to get me to where I want to be. You've got a great place to say, well, we've got options here. Let's talk about what's possible, and then we understand what they're doing from a cash flow perspective to see if it looks like it's doable to have that conversation with them. 

David (00:40:03) - Yeah. And for your listeners, I think it's important for just for us to talk about timing. Right. We can do 2023 plans up until tax filing. So, okay, anyone can still get a tax deduction and get these plans set up. As you know, we just, we want to talk about it now and whether it's April or they're going on extension.

David (00:40:26) - But we but they have time to set them up and to fund for 2023.

Adam (00:40:32) - So, on like A41K that has to be set up in like October. You're saying this is still.

David (00:40:37) - Yup. We can still get money in there. You could still get money in the profit-sharing component. If 401 is even part of the plan, that will be part of 24. But the other portions of this will be the bigger portions, and they could still get a 23 deduction. We're also getting a good inflow of referrals regarding 24 right now. And I love these 24 plans that we're setting up because they don't have to get all the money in there till next year's filing. So, that's a long time to be able to hold on to cashflow and do that. We have, a lot of CPAs that will go and we'll plan, they'll plan for it for, okay. Let's just say it's a $300,000 contribution. They'll plan for it and they will adjust the estimates for the client throughout the year and bring them down based on knowing that they're going to have this bigger deduction.

David (00:41:35) - So, cash flow wise, they're paying less in estimates. Sometimes cutting them in half. And then they're directing those funds into the plan. And they can do it on a monthly basis quarterly. Do I have, do I have profits. Do I have cash flow. Do I want to. Yes. Great. Let's put them in. No okay. Let's not. And like you know they have that flexibility to do it instead of waiting till next filing for you know So, getting to that deadline and saying here's a big check.

Tom (00:42:08) - Okay and knowing that it could apply to 2023. How long is a typical time frame? Because we love deadlines and I assume you don't want someone calling you, you know, April 10th and saying, can I still get it done by April 15th? What do you need to know?

David (00:42:22) - We work with it's just everybody else, right? Like it's always, you know, asking the clients for some basic information. You know, it takes time. We they disappear after saying yes and then and then resurface and say, oh, here's everything you needed, but why isn't this set up tomorrow? So, I would say on average, it's around a month that it takes to get it set up.

David (00:42:45) - You know, there's a lot involved, a lot of resources, but, you know, it can happen within a month, I would say I, I have from what I see, it's generally, around six weeks. okay. Just because of the way that, you know, the us getting the information that we need.

Tom (00:43:04) - But that's enough. If someone's finding themself come to the tax deadline, right. Six weeks in advance, corporate return should be getting done right around that time where you could be saying, hey, remember we told you you're going to write a big check. It's say it's $1 million check. There are some things you can do to try to lower that. We've got to move now if you want to. But we could do that. And you're telling me. Yes. That's you could get that in place in that time. That could be a scenario where someone is the nice plan for one might be, hey, for the last couple of years, looks like you've been doing great.

Tom (00:43:32) - Let's get something in place for a multi-year strategy. Which you'd have.

David (00:43:37) - Yep. Both work. Yeah. Cool.

Tom (00:43:41) - This is excellent. I feel like I've got a great tool and a and a resource that we can refer people over to you. it looks like it's a really easy, seamless way to get people over to talk to you. I didn't hear you say any specific. So, kind of any 401K you're willing to work with? Are there many cases where you're coming in saying, okay, you really need to be switching away from an existing kind of.

David (00:44:02) - That's a great question. We're not really trying to switch or move the 401 around. What we might have to do for testing purposes is sometimes change the way the match is being done, or the formula on it. We try not to do that. So, if it has to get done with a design, will sometimes go back to the actuary or go to a different design because nobody wants their match messed with.

David (00:44:27) - If there's employees like they just that's a hard conversation to have unless it's a better match and sometimes it's well, this is going to be better because it's allowing these other things to work this way. but we want it. We do need a lot of times if there is a 401 in place, we need the documents behind the scenes of like, you know, what is the match look like? What is an adoption agreement look like? We will get to a point, and we try to to not ask for too much information upfront, because that could take a long time. And by the time we get all that, it's just we're far down the line and so, we'll try to gather what we can and then work with that and then ask for those documents. But again, we're not trying to, we disrupt that 401 if we don't have to.

Tom (00:45:22) - Excellent, Dave, thank you very much. This is helpful. I feel like I've been educated enough that I can talk to my clients and know enough to say, let's bring in the expert to get that done and then trust how that will go versus feel like I have to know every bit of information.

David (00:45:37) - Yeah. Appreciate it.

Tom (00:45:39) - Good. Excellent. Hope everyone has a great day.

Adam (00:45:41) - Thanks. Take care.

David (00:45:42) - Thanks guys.

Outro (00:45:43) - Enjoy this podcast? Visit our website SummitCPA.Net to get more tips and strategy for achieving Modern CPA firm success. We are here to be a resource in this ever-changing industry.