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Published on: 1/1/2008
Last Visited: 9/6/2009
CnnMoney.com introduces us to Bob Johnson, the CEO and Founder of Johnson Insurance and Financial in McKinney, Texas.
The report tells us that Johnson was looking for large tax breaks when he stumbled across some from the unlikely source of traditional defined-benefit pension plans.
In fact-the tax breaks he found amounted to over $200,000 in a three year period.
Read these excerpts from the report and see if there is anything in it that will help you-
"Johnson, 65, has been running a thriving financial services business for 35 years, generating net income of about $500,000 a year.
He faithfully maxed out annual contributions to his SEP retirement plan, but three years ago he looked at his tax bill and wondered if there wasn't a better way.
"If you're making $500,000 a year and contributing $40,000 to a SEP [the maximum in 2004], you still have $460,000 of net income on which you have to pay 35% tax," says Johnson.
...
Johnson opened a defined-benefit plan three years ago and contributes $200,000 each year.
By his reckoning, he has shaved more than $200,000 from his tax bills while accumulating more than $700,000, including gains, in his plan. (Of course, when he withdraws that money, he will have to pay taxes on it.)
...
That is a boon for Johnson, who is currently investing in new office space and a marketing campaign, which he thinks could double his income next year.
If he succeeds, he will maximize his tax deduction by opening a solo 401(k) plan and contributing the maximum in addition to the $200,000 contribution to the pension plan.
"If I have a windfall next year - which I might with the new business - I can put an additional $34,000 into a solo 401(k) plan.
Together with my wife, we can put in $68,000," says Johnson.
In a bad year, he's not obliged to add anything to the 401(k).
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