Protecting the Tax Advantage of Your Deferred Compensation

The American Jobs Creation Act of 2004 imposed strict new rules on non-qualified deferred compensation plans. Beginning in 2005, deferred compensation programs that are not in compliance with the new rules may be taxed as wages, slapped with a 20% excise tax, plus charged an interest penalty.

Given the potentially huge tax consequences for non-compliance with the rules, you should consult with your organization's benefit specialist and your tax professionals to figure how your compensation might be affected by these new rules.

Deferred compensation plans are often used to provide for the deferral of salary, incentive compensation (i.e., commissions or bonuses), or supplemental compensation for top executives, independent corporate directors, and individual board members. The new rules apply to nonqualified deferred compensation plans at taxable and tax-exempt organizations.

An option for independent corporate directors and individual board members who receive 1099 income for their services may consider is to freeze their nonqualified plan and adopt a qualified plan such as the "one person defined benefit plan", called the Solo-DB Plan. Qualified retirement plans are exempt from the requirements of the American Jobs Creation Act.

The Solo-DB plan allows the highest deductible contributions possible in a qualified retirement plan. For example in 2005 one can contribute up to $170,000 of compensation into a tax-deferred Solo-DB plan.

Defined benefits plans have been around for a long time. But, recent pension legislation has raised the contribution and deductibility limits as well as simplified plan fund requirements. Thus, defined benefit plans like Solo-DB have become much more attractive to upper-income individuals with self-employment income. The Solo-DB plan will allow you to aggressively fund your retirement while cutting your taxes significantly.

Individuals who qualify for the Solo-DB plan include sole proprietors, independent contractors, and small business owners age 45 or older who can contribute more than $41,000 annually to the plan for at least three years.

For more about Solo DB plans visit Lamaute Capital at: http://www.InvestSafe.com.

About The Author

Daniel Lamaute, CEO of Lamaute Capital, Inc. (www.InvestSafe.com) specializes in setting up retirement plans. You may visit http://www.investsafe.com to access a free calculator that will help you estimate what your maximum contribution might be under different plans.

---

Ask The SEC

Who is the SEC and why should I ask them... Read More

Asset Location ? Increase Investing Returns & Reduce Your Taxes

Location ? Once the holy grail only for real estate... Read More

Discipline in Trading and Investing

The one thing I can think of that most affects... Read More

Mutual Fund Selection Made Simple By Indexing!

Non-indexed mutual funds try to keep it secret that actively... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a... Read More

Overbought/Oversold

Has your broker ever told you that a stock is... Read More

How To Create Wealth In The Stock Market

First and foremost, an opportunistic strategy for creating wealth in... Read More

Delist My Corporation Please

It use to be said that once a company was... Read More

Investing in Car Dealerships: Doing Your Homework

This article attempts to help give the investor a broader... Read More

Real Estate Clubs Hot Among Investors

Six or seven years ago, the stock market was booming,... Read More

Critical Investors Business Daily Responsibilities - If not Followed Could Cost You Millions!

When thinking about the investors business daily responsibilities in today’s... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More

Investing In Sons Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 to start... Read More

Should You Put Your Annuity in an IRA?

Let me start by answering that question...if an annuity fits... Read More

Approaches to Investing

Here is a small summary of the three major approaches... Read More

Investing In or Owning Drug Lab Properties

Clean Up (includes the insides and the outside of a... Read More

What is an Investor Ready Business Plan

A Business Plan, as all good entrepreneurs starting out in... Read More

Moving Average Convergence Divergence ( MACD ) Charts

The Moving Average Convergence Divergence charts, or MACD charts for... Read More

Straddle Strategies in Option Trading

The straddle strategy is an option strategy that's based on... Read More

How to Buy to Let

Find out everything you need to know about buy to... Read More

Raising Capital in Today?s ?New Economy?

We've helped a number of clients develop business plans and... Read More

Pros & Cons of Investing in Bonds

What are Bonds?A bond is a debt security, by which... Read More

Creating a Financial Future--Putting Your Plan Into Action Part 2

Real Estate can be a useful tool for investing. The... Read More

Choosing A Financial Advisor

With so many financial advisors trying to woo you with... Read More