[00:00:54] Andrew Rafal: All right. Welcome back to a brand new episode of Your Wealth & Beyond. This is our very first live episode in the new office and I’m very pleased to welcome back to the show our Director of Corporate Development here at Bayntree and a really good friend and mentor, Brian Hartstein. Welcome back to the show. How are you doing today? 

[00:01:12] Brian Hartstein: I’m doing great, Andrew. I’m excited. This is a great new format. I love being on before. But as I told you, we’re going to be talking about some things I love today. I’ve had a decent amount of coffee so I’m really excited and ready to jump into it. 

[00:01:23] Andrew Rafal: And, audience, listeners, you know, Brian is one that can bring the fun into pension planning and retirement planning. I know that sounds like an oxymoron but I digress. So, Brian, we’ve had you on the show in the past. Before we jump in, I want to find out how’s the summer going for you. What’s been going on? 

[00:01:40] Brian Hartstein: Now, I can say it’s been better than last summer. I’m sure it is the same for everybody. It’s been fun. We’ve had a chance to get out to the coast in California, enjoy some cooler weather but as kids come back to school here in Arizona, we’re in mid-August, we’re all kind of getting back in the swing of things. And it’s fun to kind of be going in the fall and maybe looking forward to some things that we weren’t able to do in the last 18 months. 

[00:01:59] Andrew Rafal: Yeah. Unfortunately, Brian was supposed to go to Jazz Fest in New Orleans and they did cancel that but it looks like football is going to be ready to go. And some of the shows that I’m going to be going to, Dead & Company, they’re going to be rocking and rolling. So, hopefully, we can get through this latest surge and get back to some normalcy because we all need that, a little recharge and get back, and hopefully, 2022, which we all thought 2021, 2022 will get us back to the “real normalcy.” So, with regards to now in August and as we come up to year-end, one of the things and what we’re going to focus on today, a lot of questions that we get here at Bayntree is in regards to the business owners that we work with, both small business owners and large business owners. But today we’re going to talk, Brian, about if I’m a solo employer meaning I run my own business or maybe have 1099 income coming in, what are some of the things that I can do to help save for retirement? 

And I know that’s a mixed bag. There’s a lot of different things and what can be done. So, what we’re going to do today is try to just talk high-level and break it down so that the listeners can figure out what may be best for them, and then they can talk with their advisor or their CPA. So, before we jump in, this is a space that you’ve lived and breathed for what now? Almost 30 years? 

[00:03:15] Brian Hartstein: I think even longer. You know, my family business was the third-party administrative world, which for those that don’t know what that industry is, they basically just help pension plans comply with the laws and file the tax returns and really do all the administration. So, I grew up in that business. I started working in the file room in the early 80s when I was like in seventh grade. So, I said it’s all I’ve been trained to do. It’s near and dear to my heart. And the small business owners in Arizona are really the backbone of our economy so it’s so important for especially people here. 

[00:03:46] Andrew Rafal: And I think we all can agree that taxes are going to be going up in the future. So, very important. A business owner who works hard paying more in taxes can help really hurt their growth. So, when we think about options that are available for business owners, think about as an employee, it’s really pretty simple, right? My company offers a 401(k), I’m going to put money in there. If they don’t, or maybe a combination of a traditional IRA or a Roth IRA. So, let’s put our business hat on, business owner hat. What are a couple of the things, the simple things first before we get into the more complicated things, what can they do to start saving money for retirement? 

[00:04:25] Brian Hartstein: Sure. And I say, first of all, I say before we do that, always make sure you have the right tax help meaning you have the right person in the accounting industry, CPA, helping you as a business owner, making sure you’re taking advantage of a lot of different options that can help you on a pretax level. You know, a lot of what we do here, Andrew, is very specific but they’re almost like primary care. I always think that if you have a really good proactive CPA, they’re going to be able to do so much for you at that pretax level. So, that’s important. 

[00:04:53] Andrew Rafal: You know, that is so important but, unfortunately, how many times do we hear from the business owner that maybe they’re not getting that proactive planning from the CPA? And that’s not to take away from the CPA but most CPAs are thinking and looking backwards, right? What did you do in the previous timeframe or the previous year? So, what are some of the things that if I’m a business owner, what should I be looking for in a CPA that can be proactive in that tax planning? 

[00:05:19] Brian Hartstein: Sure. And I’d say the first thing that we like to always look at in conjunction with CPA is what I call pre-year-end tax planning. Don’t try to attack it after the year closes. So, if you’re a calendar year taxpayer and you’re getting down into September and October, November, you already know what your year is going to look like, make sure you can access a CPA that’s going to be able to talk to you before and even like if you’re working with an advisor like ours, we do a lot of those types of meetings so we can be proactive in front of what we’re going to have to solve as opposed to going, “Oh, gosh, we got to the end of the year and now we’re playing catch up.” So, it sounds simple but we find so many people don’t do that pre-year-end tax planning and you need a CPA that’s going to be willing to do that with you. 

[00:05:58] Andrew Rafal: Great. And I think it is that adage we always talk about. It’s keeping more of your hard-earned money in your pocket and less to Uncle Sam. So, the simplest way if I’m a solo entrepreneur, business owner earning 1099 income, a salesperson, the easiest thing I can do if I don’t have a 401(k) plan anywhere is what? 

[00:06:21] Brian Hartstein: Well, you can always put in a SEP, a simplified employee pension, and it doesn’t matter if you’re what we call a Schedule C taxpayer or you actually have a real entity where you operate your business from. And again, there are some pros and cons to doing it both ways and there are going to be CPAs that can give you great information on that. I always like using an entity of some type, whether it’s 1099 income that I’m bringing into that entity or it’s getting paid directly to that entity for the services I’m performing, I think you can do a lot more, but there’s plenty of Schedule C taxpayers. So, a simplified employee pension, if you don’t have employees, lets you put away with 25% of your compensation away into a retirement plan where you can take a deduction for it and then take advantage of the tax deferral as well. 

[00:07:03] Andrew Rafal: So, let’s break that down. So, the SEP, the simplified employee pension plan, and you did indicate that it’s more beneficial if you don’t have any employees. And we’ll talk about that in a second why. So, let’s say I’m a solo employee or I’m the only employee, employer with one employee. I earn $100,000 after my expenses and I’m going to show that as pure income, no distribution. So, what you’re saying is I can then put away up to 25% of that. I know there’s a little bit of a formula but in theory, just thinking about, so I can put away maybe $25,000 or close to it in a bucket that is going to then give me a tax deduction, and then I can grow it tax-deferred. And then what happens when I start pulling it out in retirement? 

[00:07:52] Brian Hartstein: That’s a great question. So, if you got a deduction for the money going in and you got deferral along the way, eventually it’s going to be taxable in the year you withdraw them, just like if you take it out of an IRA. And it’d be very similar to that, whether you’re over 59 ½ or under 59 ½ is going to play in that as well. But I do think one point you brought up that’s important was about the compensation. You could make a million dollars, you can make 2 million, but there is an IRS limit on the amount of compensation that you can use for calculation of pension benefits, and for this year, it’s 290,000. So, it doesn’t matter if you’re making more than that. That’s the most we’ll be able to assume. So, when we start doing the math on what’s the maximums and what can I put away, you have to remember you have a cap there as well. 

[00:08:32] Andrew Rafal: And the income that you’re referring to, because a lot of business owners will take, in a sense, a W-2 income where they’re paying FICA, they’re paying into Social Security, paying into Medicare, and then they’ll take a distribution, which is a little bit more efficient tax-wise. In regards to this 25%, is it of both or is it just of the money that I’m showing as true income like a salary?

[00:08:56] Brian Hartstein: Right. And that’s a great question and the answer is there is a difference between those two. So, let’s not talk about how the income is categorized based on entity type because that can be a little different. Let’s just say active income is income that you pay payroll taxes on. And the only thing that you can include for calculation of those pension benefits up to that limit is active income. So, if you get a K-1 distribution, that’s not going to be considered active income and you will not be able to include that. If you have W-2 type income like from an S Corporation or income coming from an LLC where you’re paying those payroll taxes, you can use that for pension benefit. 

[00:09:30] Andrew Rafal: Okay. So, that’s very important, listeners, to know that again a CPA can help you qualify to see what you qualify for. The other thing in regards to getting that money in contribution, we know 401(k) we have to get it in by year-end. With the SEP contribution, what is the timeline that I have to put money in? Is it the same year or do I have the flexibility to wait until the following year until I file the taxes? 

[00:09:55] Brian Hartstein: Technically, it’s not a salary deferral type scenario. So, you can extend out and file that in the year after you’re going to file your taxes and still have it count towards that prior return. So, for some clients where cash flow is not an issue, they might fund it during let’s say 2021 but theoretically, if you want to make a SEP contribution for this year, you have a lot of time after the close of the year to be able to make that contribution. 

[00:10:16] Andrew Rafal: Right. And I like the fact that it’s simple. You know, it’s a simplified pension plan. So, that means we don’t need a TPA firm. We can open up the account or, listener, you can open up the account at any custodian but it’s pretty simple in regards to not a lot of, if any, costs associated with opening up the account. 

[00:10:32] Brian Hartstein: Right. And normally we don’t associate governmental-type things with simple but in that case, it is very simple to set up. The only thing I would say to think about ever in the future is if you do hire one or more employees because then they’re going to be under the same formula as your contributions. And so, one thing you need to be proactive about is saying, “Okay. Am I going to start hiring employees? And if I do, I got to be careful about having that SEP and then maybe making a change at that point or talking to my advisor.”

[00:10:56] Andrew Rafal: Yeah. And, listeners, that’s an important point. And this is where we do see a lot of business owners fall into this trap of not understanding that rule. So, yes, if you are the only person that works for your company, great. You put away up to the 25%. It’s clean and easy. Now, let’s assume you’ve got two or three full-time employees. Where we see a lot of people running afoul of the rules is that they don’t realize that if they’ve got these qualified employees, they put away 25% for themselves then, and correct me if I’m wrong, then the business owner has to then contribute up to 25 or whatever they contribute so if it’s 25%. If they have an employee making $50,000, they have to contribute, in theory, close to that little formula but that 25% so now they have to give that employee over $10,000. 

[00:11:42] Brian Hartstein: Absolutely. And it goes back to that pre-year-end tax planning. Know what you’re going to try to accomplish before we get to the end. Because after the year’s close, we might be stuck. You may have already made a contribution or there might be things in place that don’t let you go backwards. So, be proactive about it. 

[00:11:57] Andrew Rafal: What happens? What kind of penalties are there? Because let’s say you have a business owner that didn’t know these rules. They didn’t have the right advisor. They didn’t have the right CPA. They’re three years into that. They’ve been funding their SEP, but they did not fund their employee SEP. What kind of parameters? Is this under ERISA? Am I going to get a penalty like what happens in that case? 

[00:12:16] Brian Hartstein: Yeah. I mean, really a lot of times it’s sometimes people would just kind of be flying in the dark. They won’t know they’ve got a problem until either they come under audit and then it’s brought up or they want to be self-regulating and they come forward. In that case, there’s usually not many penalties or you can get those things mitigated. You’re going to have to go back and make three years of contributions for those employees. And let’s say your payroll at that point was $100,000, 25% of $100,000, which you’re going to be giving away. And even more importantly, that employee may not even be with you anymore. So, you might have to go get money, a person that doesn’t even work for your company, which these are all not real pleasant things and I think you can avoid them if you’re in the right planning scenario. 

[00:12:52] Andrew Rafal: Right. And that’s the key is just having the right team surrounded by you so that they can provide you the right advice. Because most business owners, as we know, they’re flying, they’re working all in their business. They don’t have the time to spend learning these types of things. So, it’s very important when you do get bigger or you do start putting money away or you do start hiring employees that you know what the rules are. Now, let me ask you this. Let’s say I run a small business, kind of like a side hustle, but it’s a real business and then I work for a company and that company offers a 401(k). If I earn income over here from the side business and I’m contributing to the 401(k), can I still do a SEP on that money that’s from the business income?

[00:13:36] Brian Hartstein: Yeah. You can actually – it can get a little complicated because we get this a lot where somebody maybe doesn’t even have a SEP. They’re contributing the 401(k) in the company they work for. Maybe they’re looking at something like a SEP or they’re looking at maybe like eventually a different type of plan we’ll talk about. So, you’re going to have to look at the limits. So, if you’re deferring up to that 19,500 in the 401(k) for your regular employer or your older over the 50 again deferring more, you can’t replicate that in a second entity. But what you could do is maximize under what’s called the defined contribution limits. Maybe using a profit, you’re applying something different. Even the SEP, you can fill up that portion. We kind of get into what that overall limit is. 

[00:14:17] Andrew Rafal: But there’s a limit. You can’t just put…

[00:14:20] Brian Hartstein: No.

[00:14:20] Andrew Rafal: You make 290 over here and you made… 

[00:14:22] Brian Hartstein: You can’t keep doubling up on that 19.5 limit. That’s called your 415 limit. You can’t double up on that, but you might be able to fill up that, so there’s actually what’s called the defined contribution limit. 401(k) plan’s part of a defined contribution plan. That actually is 58,000. So, you might be able to make up the difference between the 19.5 and at 58 on a separate additional type plan on the side. There are ways to do that. So, there is some flexibility there depending on how much you want to put away. 

[00:14:50] Andrew Rafal: And again, listeners, don’t do this on your own. If you’ve got separate income coming in from different buckets, you’re putting away in different places, just make sure that you’ve got a team that’s helping you on that because that’s just stuff that even you and I live in the weeds in this stuff and it still can be complex and a little bit confusing. So, the SEP made the points simple. You can put away up to 25% but up to that maximum amount. And the pitfalls of it if we hire employees, we’ve got to be careful that we don’t just contribute for us, but the company has to contribute for them. That’s kind of it in a nutshell. The Roth IRA, in conjunction with the SEP-IRA. So, Roth, pretty simple. Under 50, we can put away up to the 6,000 and over we can do to 7,000. But any double dip there? If the income that you earn is less than on the Roth side right now, about 210,000, can you put into a SEP and then also do a Roth IRA? 

[00:15:45] Brian Hartstein: That’s a good question and I’m not sure why you couldn’t but I’m not an expert on the Roth IRA side but it seems like as long as you fell under the limits that you would be able to participate. 

[00:15:53] Andrew Rafal: I think both with regards to falling under that 210, as a joint married filing, you’d be able to do that but that’s, again, something that you want to look into. If you can put more money in a bucket that’s like a Roth that’s going to grow for you tax-deferred and be tax-free later, obviously, always a benefit there. So, we talked about the SEP. Now, let’s talk about we know 401(k)s. Most listeners have a 401(k) or have had one from a company. What does a solo 401(k) mean? What does it look like? And why would I go down that path to bring one versus a SEP? 

[00:16:26] Brian Hartstein: And that’s a great question. I always say when we’re looking at like this type of pension planning and normally, that’s our first arrow out of our tax planning quiver for a business owner. When they’re looking to put money away, they’re looking for deductions, obviously, we’re going to pension plans to do it. And so, if you think of it as a pyramid, SEP might be the very, very bottom level of the pyramid. It’s very simple. It’s very easy, but there’s not a lot to it. Now, we’re moving up. Now, we’re moving up the pyramid into the solo 401(k) area. So, what that does is that gives us the ability to defer for ourselves that up to the 19,500 limit for underage 50 or we can get up to the 26,000 for over age 50 and then we can also maybe do a profit-sharing plan contribution to also get us up to that $58,000 limit or four over age 50, we can actually put away up to 64,500 into that plan. And there are some advantages by being a one-person plan. 

[00:17:18] Andrew Rafal: So, you just threw a lot of numbers out of me. And I know these but the listeners are probably swimming, “Okay, 19.5. Profit-sharing 26,000.” So, let’s step back. And again, 401(k), solo 401(k)s, people think of that and say, “Well, they may be expensive, but I need to hire a third-party administrator.” So, we work with lots and lots of business owners that are, again, one employee. So, the value we’ve seen with the solo is the simplicity too. It kind of goes back to that SEP of setting it up. So, let’s walk through that. What does that look like in regards to the solo in cost and then fundamentals of how we have to add to it and platforms and things like that? 

[00:18:03] Brian Hartstein: Sure. And you’re right. That’s one of the great things about a one-person or solo K, as we call them, a solo business 401(k) is there is simplicity built into it. So, you’re going to have some type of entity. It could be an S Corporation. It could be an LLC. Whatever you’re operating your business under, that business is going to adopt the plan. You’re going to use in adopting an agreement, a plan document. That’s pretty easy to get. You can get them for free pretty much from most large custodians. It’ll be a little bit cookie-cutter or you can have a third-party administrator firm put one together for you. And then once you have that, you have a plan tax I.D. number. So, every pension plan is a tax-exempt trust, just like a family trust is a trust, gets their own tax I.D. number. Once you get your plan document, your tax I.D. number, you can set up your accounts and fund your accounts. And until you have at least $250,000 inside your pension plan, you don’t have to file any tax returns for the pension plan. So, it’s relatively simple to set up and simple to maintain until it starts getting larger. 

[00:18:57] Andrew Rafal: And then I can put away the 19.5 from under 50. I can invest in whatever I want, stocks, bonds, mutual funds, ETFs, etcetera. And then if it’s a pretax part, I get to deduct that at the end of the year. 

[00:19:11] Brian Hartstein: Sure. And so, for people who are looking for some type of tax mitigation, they say, “Hey, I’m in a high tax bracket or I need some relief.” And again, that 19,500 is what we call the salary deferral portion, just like if you were working for a large company like Honeywell and you’re deferring part of your salary. So, if you’re under age 50 and said, “Yeah. I can put in 19,500 into the traditional 401(k) and deduct that against my gross income,” so I’m paying less state and federal taxes on my income than I would. 

[00:19:42] Andrew Rafal: And what we’ve been doing more and more, listeners, too in these solo 401(k)s is we’ve been creating it where the actual individual, the contributor has the ability to utilize the Roth 401(k) option. And this is a great vehicle for somebody who maybe can’t contribute to a Roth IRA. There is no income limit when we have a Roth 401(k) option. So, if we think about it, if you put in up to the 19.5 into the Roth 401(k), the downside is we don’t get a tax deduction in that year. But the positive you just filled up a Roth bucket that’s going to grow for you over time, tax-deferred, and then guess what? The key component here is it’s tax-free when it comes out. So, when you set up these solo 401(k)s depending upon where you are in your situation, it may make sense to look at diversifying your tax buckets. And that’s something that most advisors overlook. 

So, you can set it up where you have both buckets, like, for instance, the Bayntree 401(k), you have a Roth component. I put 50% of the 19.5 in the pretax to get a tax deduction. I put 50% in the Roth. So, I’m paying a little bit more taxes today for the benefit of having hopefully lower taxes in the future. So, that’s a key parameter, allows somebody who’s in a higher income bracket to really super fund a Roth account, in this case inside the 401(k). 

[00:21:03] Brian Hartstein: Absolutely. It’s a great way to do that. And that combination of tax buckets is so crucial because when you’re in retirement, the one thing you want is control. And how do you get control? You control where your money comes from and how it’s taxed. So, it’s a great way to maybe take advantage of those benefits from that. Now, I always tell people, because this comes up quite a bit is, “Hey, can I put 19,500 into the Roth and 19,500 into traditional?” The answer is no. It’s a combined limit. So, like you said, you can do half-and-half but you can’t double up on that limit by choosing both. 

[00:21:32] Andrew Rafal: And then you mentioned earlier about this profit sharing. So, we’ve filled up the 401(k). We’ve set up a solo 401(k) and now talk to us about profit sharing for, again, this is for a solo and solo entrepreneur. What does that mean, profit-sharing? 

[00:21:49] Brian Hartstein: Sure. A 401(k) plan and a profit-sharing plan are common under what’s called defined contribution plans. And really what it comes down to is an owner, we talk to one and they say it’s not, “Hey, I want this plan.” It’s, “I need a plan where I can put money away for myself and I need to be able to put away $50,000 this year or $40,000.” So, we try to find out what they’re looking for, either from their CPA or from them in terms of what type of tax planning are you trying to do? And then we try to find the plan that fits. The benefit of adding the profit-sharing plan in is we can then put away up to that maximum defined contribution limit of $58,000 in a given year for under age 50. So, between the 19,500 we were putting in as our kind of salary deferral, now we can put an additional amount into the profit-sharing plan component up to that $58,000. And now we have a $58,000 contribution when we make it to our qualify plan for that year. 

[00:22:42] Andrew Rafal: All right. So, let’s talk English to me and the listeners. So, let’s again use this individual that makes 100,000. They’ve got the solo. They set it up. They put away their 19.5. They’ve got 100,000 of income. Profit-sharing means I can take a percentage of that and I can then add it on top of the 19.5. 

[00:23:01] Brian Hartstein: That’s exactly right. And so, that comes right off the top. So, we call it above the line deduction. You’re not paying state and federal taxes on that amount that goes in. So, it’s basically like working Uncle Sam’s money. 

[00:23:10] Andrew Rafal: So, you’re based in and if you put it into the Roth, I don’t get the tax deduction on that 19.5 but in this case, I may be able to put away up to 25,000 additional dollars into my 401(k) profit-sharing. Of course, I’d get the deduction on that 25,000 but now what I’ve done is I’ve created the ability for me to save more and I’ve got in the sense now this after-tax bucket. I’ve got the pretax bucket. I’m high-fiving everybody because I did the right thing because I got the right advice. 

[00:23:36] Brian Hartstein: Absolutely. And I will tell you from a timing issue where you sometimes have to be a little careful here is that 19,500 you want to get in before the end of the year, your fiscal year. And the reason is it’s the payroll tax, the payroll report and tax issues. So, you want to make sure you got that in before the end of December and then you have time to make that profit-sharing plan contribution just like you would if it was the SEP. So, you have up until you file your corporate return. You can keep extending to the maximum extension date, but you have up until that date to make that contribution. So, you’re well into the next year to be able to say, “Hey, here’s the money that I now want to put in the plan.” 

[00:24:09] Andrew Rafal: All right. So, we’ve covered the SEP. We touched on a little bit of the traditional, the Roth IRA, the simple stuff there. We talked about the solo 401(k)s and profit-sharing. And now let’s go through the last bucket. And this isn’t for everybody but a lot of the clients we work with, we have anesthesiologists that run their own business or real estate investors but think of it as we’ve got good income coming in. We don’t have a cash flow problem. So, we’ve got a tax problem, right? Let’s say we’ve got somebody who’s, again, works for themselves. They’ve got 700,000 of income coming in and they know that that’s going to be a consistent income stream over the course of X amount of years. So, they were smart, they did the 401(k). They might have done the profit-sharing. What else is out there for them to help put more of their hard-earned money in their pocket and less in taxes? 

[00:24:56] Brian Hartstein: Right. And now we’re getting to the top of that pension tax planning pyramid and we’re going to use a couple of different things here. But normally that’s the business owner that comes to us. And we’ve had these conversations multiple times as saying, “Hey, I make a lot of income. I take what I need out to live my lifestyle and I have a bunch leftover.” And in that case you just gave me you’re like, “I have more than I need. How are we going to take care of this because I’m going to get killed on taxes?” And so, there you might want to use what we call the combo plan, which is a combination of what’s called a defined benefit pension plan with a 401(k) profit-sharing plan. So, there might be different variations of that but we’re looking at running two pension plans together. We already talked about one but now we’re going to stack on what’s called the defined benefit pension plan. And that’s a plan that may be a little less flexible in terms of making contributions but you may be able to put away depending on your age 100,000 or 200,000 or more on an annual basis for maybe 8 to 10 years and really hit a home run on your tax and retirement plan. 

[00:25:58] Andrew Rafal: And so, in some cases, we’ve seen the owner put away say $0.45 on the dollar or what they’re able to put in whether it’s a couple hundred thousand. There’s a max out there. But the pension plan, defined pension plan, now because it’s a little bit more complicated and falls under these certain rules and regulations, now, we need to bring in a TPA firm, though, to help design the plan and work with the advisor and the owner to make sure that it’s all compliant? 

[00:26:24] Brian Hartstein: 100%. So, you’re going to need a good skilled third-party administrative firm to help you. So, you’re running two plans side by side. They’re going to help you set up those plans, get the plan documents together, make sure that the plan is running properly throughout the year in conjunction with whatever advisor that you’re using, and then file with what are called the 5500s. That’s a tax form that every pension plan has to file that’s above a certain set amount or of a certain type. So, they’ll help you do all that throughout the year but you do need to engage in a good one. There’s a variety of good ones out there that help you do that. 

[00:26:55] Andrew Rafal: And that’s where we come into play. Firms like us at Bayntree, we will work with the owner and hold their hand because, again, kind of acting as that quarterback between them and the TPA firm because there are certain information that needs to be provided each year, actuaries, estimates, things of that nature. So, it’s not something that is one where we recommend you do it without an advisory firm but it is one if you do it correct, you can put a lot of money in your pocket for the retirement years, and that way you are saving on taxes while you’re at this high-income level. And then a lot of times what we see is that when they then maybe sell their business or they retire, their income drops. So, there are ways at that point then once that defined pension plan or benefit plan goes away, it becomes an IRA, and then we won’t really get into too much of this but then there’s the potential of converting that to a Roth in these lower-income years. So, it’s always about what we’re looking at, short-term, medium-term, and long-term in regards to helping the individual, the business owner, keep more of their money in their pocket. 

[00:27:58] Brian Hartstein: Absolutely. And it all goes back. Again, I always stress pretax planning. Now, there are some times where you might want to do after-tax planning, like with a Roth, but it’s looking at the business at the top level and saying, “How can we really efficiently utilize the monies before it gets to that person individually a salary?” Because they’re kind of the games over. And so, we don’t want the erosion of those hard-earned corporate asset dollars to go away if we can help it. But what’s interesting with those defined benefit pension plans because there is complexity. So, a lot of times the clients say, “Well, what does it cost to set that up? I need to know.” And I’ll say, “Well, let’s say in the first year for a one-person combo plan, it might cost you $4,000 to set it up with, let’s say, an average TPA cost and maybe $2,000 to $3,000 to run it in subsequent years.” Now, that’s a deductible expense. So, you can deduct that. But it’s still hard cost but you can do the quick math. Let’s say I put $200,000 away into this plan and I’m on a 45% tax bracket. So, what was my tax savings?

[00:28:55] Andrew Rafal: You saving close to $100,000. 

[00:28:57] Brian Hartstein: So, is it okay to spend a net of $3,000 or $4,000 every year on it? I think so. But sometimes we have to get down to that type of cost-benefit analysis for a client. What are we getting? What are we spending? What’s our ultimate benefit? 

[00:29:10] Andrew Rafal: Right. And this plan, in theory, is great but it’s not great for everybody depending upon how many employees that you have, how old that you are, certain things of that nature. So, there’s kind of this perfect unicorn where it really fits. And those are some of the things that we can help you as a listener understand if you’re a business owner, what is right for you because I know we went through a lot today. It’s somewhat complex or it is complex and that’s we’re just knowing what is out there, what’s available, what are my options, and then making sure that you are making the right decision because you’ve got the right advice. 

[00:29:43] Brian Hartstein: Absolutely. You just don’t want to leave anything on the table and maybe you explore all the options and none of them work, but at least you tried. And so, I think what people get frustrated is they’re saying, “I didn’t even know I had three options available. Why wouldn’t have somebody told me about those?” 

[00:29:55] Andrew Rafal: And that’s a problem. CPA doesn’t. The advisor doesn’t. So, that’s part of we’re working with somebody like yourself who knows this, who lives and breathes, that can help guide you in that right direction. The CPAs actually like it because now we’re making them look good as well because everybody says the client’s saving on taxes, the CPAs being brought into the mix so it’s a win-win across the board. So, Brian, you went through a lot today. I think, listeners, you probably have questions on how it could fit into your situation. In the show notes, schedule time to talk to us. We’d be able to give you a complimentary overview of where you are, what’s available to you. Everybody has their own story. There’s no cookie-cutter plan. We want to make sure that it’s customized. And again, whether you’re a Bayntree client or not, we can at least provide you some good information so that you can make some sound decision. That’s what we’re here to do. 

[00:30:44] Brian Hartstein: That’s absolutely right. And I think we really focus on providing that type of quality information because we want business owners to be able to make successful decisions. Whether it’s with Bayntree or anybody else, we work way too hard to give it away that easily. 

[00:30:57] Andrew Rafal: And as we end today, let me hear a little guest that’s been hiding. 

[00:31:02] Brian Hartstein: He’s been sniffing my feet.

[00:31:03] Andrew Rafal: Ruby, the Frenchie right here. She is at the office today. It’s Ruby Tuesday. And if you heard any grunting, groaning, burping, that was her. It wasn’t Brian. It wasn’t me. 

[00:31:14] Brian Hartstein: But that was your salute to Charlie Watts, who we miss. So, RIP Charlie Watts. 

[00:31:19] Andrew Rafal: That’s right. What do you have to say for yourself, Ruby? Yep, exactly. So, Brian, we appreciate the time. We’re going to get on this and do regular shows, trying to niche it down, break it down. Next time we’ll go through some other areas that focus on retirement planning to help you, the listeners, make good decisions. And stay tuned for another episode of Your Wealth & Beyond later this month. Happy planning, everybody. Brian, thanks for coming by. 

[00:31:43] Brian Hartstein: Yeah. Love it. Looking forward to being back soon. Thanks, Andrew. 

[00:31:46] Andrew Rafal: All right. We’ll see you soon. Thank you. 

[00:31:47] Brian Hartstein: Take care. See you.