Hello ER Forum

[shtg42012]

Have been a "lurker" for awhile and thought I would "delurk". I have found this site to be very educational/informative and enjoyable. Have LOL more than once.

I am a self employed consulting engineer, married with one pre-teen child. My DW works in our business (and works a great deal outside of it). I would like to "retire" in my mid to late 50's and am about 5-7 years away from that milestone date. I was brought up by some conservative WWII gen folks who instilled in me some very good core values, among them fiscal conservatisim and LBYM. I feel pretty comfortable that DW & I are in the home stretch.

My reason for posting is as follows: Several years ago, I set up a "solo" Defined Benefit pension plan. It has been a useful and powerful mechanism for my retirement. However, the associated paperwork (Form 5500, actuarial filings, etc) has been expensive and is getting more so. This is probably not something alot of folks have experience with but I was curious if anyone else has this issue and if they have any insights how to minimize these costs.

Look forward to participating, learning & sharing.

Thanks,
shtg42012

 

[Nords]

Welcome to the board, Shtg. Sounds like you're in the home stretch.

Can that solo DBP be rolled over or converted to something else before/when you ER?

 

[shtg42012]

Thank you Nords. The solo DP can be converted to an IRA but this is "supposed" to only occur after the DP has been in place for 5 yrs which is 2 1/2 yrs away for me. The contribution amount is where the DP is very attractive and that is why I set it up and need to keep it in plce for the next few years.

My most recent annual fee for the admin of the DB is over $1,900 which seems pretty darn high to me. This includes the annual admin fee, Form 5500 filing, "participant" fees, actuarial certification fee, etc.

 

[AFloat]

My wife and I were self employed for over 8 years and had a Defined Benefits plan that was costing nearly $2K a year to administer but we could put a ton of $ into it each year. In the last 2 years our income dropped as we worked less and we converted to a self-employed 401k. It doesn’t allow as large of contributions but that’s ok because we no longer had the income to support the large contributions into the defined benefit program. The cost to administer the 401k in almost nothing. We were able to ER this year, I’m 55, thanks in part to being able to contribute large sums of pre-tax dollars to the DB program so it was worth it but there is no point in keeping the DB unless you have the income to make the contributions and pay the high admin fees.

 

[shtg42012]

Afloat - $2k is about what I am paying now so I appreciate that info. As you say, you can put a ton of $ in the DB, I presume yours was a "solo" plan whith just you and your wife?
Congrats on ER at 55, that is pretty close to what we want to do. A key thing for us (as for most folks I think) is to "downsize" and reduce expenses. Selling the primary residence is key to this, again as it is with most people. We live in SoCal so we would get access to the house equity, this would be a key "one time event" in our ER planning.

 

[AFloat]

Our DB plan was just for my DW and me, no employees. It was great at the time but there was no need to continue it when we started working less.

We just sold our home in the PNW and now live on our boat. We're now trying to figure out if we want to buy an RV to do some traveling during the winter. Keep saving, it's worth it!

 

[shtg42012]

Many of our recent vacations are to "scout" places to retire to. We were just in the PNW, central OR/OR coast and spent some time in Renton (with relatives) and was there for Sea Faire. We spent a day or so in Astoria, OR which was rated pretty well by alot of the best-places-to-live surveys. We had also always wanted to do a little exploring of the San Juans. We were a little pressed for time but did the "Victoria Clipper" from Seattle to Friday Harbor (quaint place, enjoyed the micro-brewery/pub that was right where the dock opens to Main St /downtown, DW shopped & I had a pint) and did the whale watching side trip. While we were in OR/WA, it was about 70-75 degrees and was 100 or more back in SoCal. My DW really wants to move to a cooler climate.

One of the nice things about the DB (as I am sure you know), is you have the option to withdraw from it at 55 or the later of your first b-day after plan has been in place for 5 years, I believe. If I convert or roll it over, I presume I would lose this option. I know there are ways to get access to other ret assets before the typ 59 1/2 but these are a little more problematic. We do not have any other pension, just IRA/Roth IRA/SEP-IRA/converted 401k's/Roth 401k/Keogh type accts., (and of course other assets) I think we have tried them all.

The new pension reform law allowing Roth conversions is something that someone should start a thread about, specifically, I would like to see a couple stategies as to how to maximize ret. assets & income thru the Roth conversions. 2010 is a long way off but you got to plan ahead!!!!!

 

[Nords]

The new pension reform law allowing Roth conversions is something that someone should start a thread about, specifically, I would like to see a couple stategies as to how to maximize ret. assets & income thru the Roth conversions. 2010 is a long way off but you got to plan ahead!!!!!     

Try searching for threads like these:

http://early-retirement.org/forums/index.php?topic=5982.msg106277#msg106277
http://early-retirement.org/forums/index.php?topic=4965.msg87041#msg87041
http://early-retirement.org/forums/index.php?topic=7175.0
http://early-retirement.org/forums/index.php?topic=7547.msg135710#msg135710
http://early-retirement.org/forums/index.php?topic=7800.0
http://early-retirement.org/forums/index.php?topic=8170.msg147059#msg147059
http://early-retirement.org/forums/index.php?topic=9141.msg165358#msg165358

 

[shtg42012]

Thank u Nords, the last listed thread was very informative including your methodology projecting a future situation as to determining conversion benefit. The analysis re: potential SS impacts aspect was very helpful also. The conversion decision truly requires some study and review of your indiv situation as well as some crystal ball projections.

As I recall, when the Roth conversion concept was first approved many years ago, there was some type of multi-year or tax-liabilty spreading option - I presume that the 2 yr provisions for the conversions starting in 2010 are similar. With the income cap removal per the new law and with so many more boomers being in the "pipeline" for retirement, this topic should get alot of press.

 

[Nords]

Thank u Nords, the last listed thread was very informative including your  methodology projecting a future situation as to determining conversion benefit. The analysis re: potential SS impacts aspect was very helpful also. The conversion decision truly requires some study and review of your indiv situation as well as some crystal ball projections.

As I recall, when the Roth conversion concept was first approved many years ago, there was some type of multi-year or tax-liabilty spreading option - I presume that the 2 yr provisions for the conversions starting in 2010 are similar. With the income cap removal per the new law and with so many more boomers being in the "pipeline" for retirement, this topic should get alot of press. 

I don't know enough about spreading out the taxes yet, but here's a new wrinkle to the Roth IRA conversion process-- college financial aid.

Any amount of conversion raises one's AGI. AGIs are used by colleges to evaluate the amount of financial aid they'll offer (if any). So an ER parent of a high-school senior may have zero earned income, but if an IRA conversion happens that year it'll really inflate the FAFSA numbers. So although we have four to six years left on our annual partial conversions, we're gonna suspend them after 2008 until we have a clearer picture of the college choice.

 

[Martha]

Another downside of the defined benefit plan is lack of flexibility; you have to contribute no matter how well you business is doing. 

With changes in the last few years for 401k plans, a solo 401k can be a pretty good deal, allowing you to put away up to 15,000  (20,000 if 50 and over) plus 20% or 25% of your pay, depending on your business structure, with a maximum cap of $44,000 this year ($49,000 if 50 and over).

Much cheaper to administer than the defined benefit plan.