Minimum Cash Value plan and the IRS
04-12-2019, 06:43 AM
#91
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Joined APC: Sep 2008
Position: Kickin’ Back
Posts: 6,971
Simple question I should know the answer to but don’t.
With this type of plan each individual has an “account” that has a cash balance. Upon retirement can this “cash balance” be rolled over to an IRA?
Denny
With this type of plan each individual has an “account” that has a cash balance. Upon retirement can this “cash balance” be rolled over to an IRA?
Denny
04-12-2019, 06:45 AM
#92
Gets Weekends Off
Joined APC: Jun 2015
Posts: 4,116
Owners 'own' their CBDB plan.
We would not. Delta airlines would.
I came to work at Delta in 1987 because it had been for decades consistently profitable, and fiscally conservative.
Would you require a financial history lesson on what the last 30 years has been around here to appreciate my reluctance to put my well being in the hands of management? Again?
We would not. Delta airlines would.
I came to work at Delta in 1987 because it had been for decades consistently profitable, and fiscally conservative.
Would you require a financial history lesson on what the last 30 years has been around here to appreciate my reluctance to put my well being in the hands of management? Again?
04-12-2019, 06:46 AM
#93
Gets Weekends Off
Joined APC: Dec 2007
Posts: 5,412
Originally Posted by Denny Crane
Simple question I should know the answer to but don’t.
With this type of plan each individual has an “account” that has a cash balance. Upon retirement can this “cash balance” be rolled over to an IRA?
Denny
With this type of plan each individual has an “account” that has a cash balance. Upon retirement can this “cash balance” be rolled over to an IRA?
Denny
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04-12-2019, 07:14 AM
#94
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Joined APC: Apr 2007
Posts: 4,458
The MBCBP looks like a decent vehicle for late career pilots to stockpile cash. It's something I'd consider in my last 5-10 years as a way to move some money into a cash position approaching retirement. It is a bad plan for long term investment holdings. because the inflation adjusted rate of return will be extremely low.
Here are two scenarios where I see this working.
1. The plan is company funded and the level of funding takes into account the tax and profit sharing savings realized by Delta. ie, 5% into MBCBP vs 3% pay raise.
2. The plan is optional and the level of contributions are chosen by each pilot. This cannot be done with confiscated DPSP Cash and pilots can periodically opt in/out just like 401k or 401a contributions.
Here are two scenarios where I see this working.
1. The plan is company funded and the level of funding takes into account the tax and profit sharing savings realized by Delta. ie, 5% into MBCBP vs 3% pay raise.
2. The plan is optional and the level of contributions are chosen by each pilot. This cannot be done with confiscated DPSP Cash and pilots can periodically opt in/out just like 401k or 401a contributions.
Last edited by Gunfighter; 04-12-2019 at 07:47 AM.
04-12-2019, 08:42 AM
#95
Gets Weekends Off
Joined APC: Jul 2010
Posts: 3,201
Originally Posted by Trip7
This highlights a big issue not only among pilots but affluent Americans in general: High Networth but unable to generate any usable cashflow off their networth because the majority of it is locked in their 401k or Value of their home.
I've discovered those who use their networth more efficiently reach financial freedom much quicker. I want to be able to take a KLOA any time it's being offered so every month I track my Usable Networth which cannot include 401k or House. I no longer contribute a dime to my 401k. I let the company do all the heavy lifting and take my cold hard earned cash and invest it. IMO, much easier and more efficient than making all these elaborate attempts to avoid taxes.
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I've discovered those who use their networth more efficiently reach financial freedom much quicker. I want to be able to take a KLOA any time it's being offered so every month I track my Usable Networth which cannot include 401k or House. I no longer contribute a dime to my 401k. I let the company do all the heavy lifting and take my cold hard earned cash and invest it. IMO, much easier and more efficient than making all these elaborate attempts to avoid taxes.
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That’s why we need to star thinking like the wealthy people. Tax deferred money, is not the way to go.
Let the company fill everyone’s 401K, regardless of seniority, including the catchup.
04-12-2019, 09:52 AM
#96
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Joined APC: Apr 2007
Posts: 4,458
Originally Posted by PilotJ3
100% agree with you.
That’s why we need to star thinking like the wealthy people. Tax deferred money, is not the way to go.
Let the company fill everyone’s 401K, regardless of seniority, including the catchup.
That’s why we need to star thinking like the wealthy people. Tax deferred money, is not the way to go.
Let the company fill everyone’s 401K, regardless of seniority, including the catchup.
-Pilot option to put DPSP Cash into MBCBP
-Use after tax money to buy real estate and businesses
-Get wealthy
Checklist complete
Most wealthy people I know use tax deferment as part of their financial plan. The primary difference is control. Our cockpits are filled with attorneys, engineers, consultants, real estate investors, mortgage brokers, software developers, etc... The MBCBP may be a good option for pilots with a side gig, where the plan is part of a business they control.
04-12-2019, 11:24 AM
#97
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Joined APC: Dec 2007
Posts: 5,412
As I read about the significant tax advantages for the Small Business Owner or Corporation implementing a MBCBP, it'll be interesting if there will be incentives added into the Contract language for example, 20% DC for everyone, plus an extra 3% if you participate in MBCBP.
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04-12-2019, 01:48 PM
#98
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Joined APC: Apr 2007
Posts: 4,458
Warning, Math in Public
Receiving $1 of pay results in an additional 0.15 of profit sharing and 0.16 of DPSP for a total value of $1.33. You would pay taxes of 24% federal, 3% average state, 1.45% medicare surtax, leaving approximately $0.95 for you to save or invest in a taxable account, backdoor Roth, real estate, vintage cars, whiskey, wine, women, etc.
If you cross into the 32% marginal rate and live in a high tax state you are left with about $0.77
In Delta's case, providing MBCBP funds would save the employer portion of medicare and unemployment taxes. The biggest savings would be excluding the contributions from DC and PS. $1 MBCBP contribution = $1 cost vs $1 of pay is a cost of $1.37 when including 15% PS, 16% DC, 2% average state unemployment tax and 1.45% medicare tax.
Putting $1 into MBCBP vs $1 into pay rates saves the company $0.37, therefore a 4% increase in base pay would be an equivalent cost to 5.5% in MBCBP contributions.
IF, big IF we negotiate an equivalent cost to the company, we could theoretically get $1.37 in our MBCBP, which will grow at a low rate and be taxed as income in retirement. Or we could get $1 in base pay plus PS and DC, minus Taxes and be left with somewhere between $0.75 and $0.95.
There are many assumptions including 15% PS for the period of the contract, marginal federal tax rates, state rates and Delta's unemployment tax burden.
Other things to consider are that by receiving compensation in the form of MBCBP vs higher pay are that your company provided life insurance and disability benefits may not be as big. These are small considerations, but shouldn't be overlooked.
If you cross into the 32% marginal rate and live in a high tax state you are left with about $0.77
In Delta's case, providing MBCBP funds would save the employer portion of medicare and unemployment taxes. The biggest savings would be excluding the contributions from DC and PS. $1 MBCBP contribution = $1 cost vs $1 of pay is a cost of $1.37 when including 15% PS, 16% DC, 2% average state unemployment tax and 1.45% medicare tax.
Putting $1 into MBCBP vs $1 into pay rates saves the company $0.37, therefore a 4% increase in base pay would be an equivalent cost to 5.5% in MBCBP contributions.
IF, big IF we negotiate an equivalent cost to the company, we could theoretically get $1.37 in our MBCBP, which will grow at a low rate and be taxed as income in retirement. Or we could get $1 in base pay plus PS and DC, minus Taxes and be left with somewhere between $0.75 and $0.95.
There are many assumptions including 15% PS for the period of the contract, marginal federal tax rates, state rates and Delta's unemployment tax burden.
Other things to consider are that by receiving compensation in the form of MBCBP vs higher pay are that your company provided life insurance and disability benefits may not be as big. These are small considerations, but shouldn't be overlooked.
04-12-2019, 01:50 PM
#99
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Joined APC: Jun 2015
Posts: 4,116
Seeing that its usually old pilots going on ltd....Backing excess 401 cash out of ltd income fae would likely save delta huge $$
Not only wud 50% of the excess 401k $$ NOT show up in a disability fae.....a pilot wud also lose the 32% 401k delta kicks in on ltd fae income.
If a senior pilot managed $30k excess 401 as part of ltd fae....his disability income would drcrease by $15k plus anothrr $5k loss from the 32% kick in frm delta for 401 contribution.
So its $20k/ year LESS in disability income if we sequester excess 401k cash to a CBDB plan.
And if its a 350A....its probably gonna be a 50K/yr disability income hit.
checkers boys.
Not only wud 50% of the excess 401k $$ NOT show up in a disability fae.....a pilot wud also lose the 32% 401k delta kicks in on ltd fae income.
If a senior pilot managed $30k excess 401 as part of ltd fae....his disability income would drcrease by $15k plus anothrr $5k loss from the 32% kick in frm delta for 401 contribution.
So its $20k/ year LESS in disability income if we sequester excess 401k cash to a CBDB plan.
And if its a 350A....its probably gonna be a 50K/yr disability income hit.
checkers boys.
Last edited by BobZ; 04-12-2019 at 02:01 PM.
05-11-2019, 08:24 PM
#100
Line Holder
Joined APC: May 2019
Position: 320A
Posts: 90
Originally Posted by BobZ
Seeing that its usually old pilots going on ltd....Backing excess 401 cash out of ltd income fae would likely save delta huge $$
Not only wud 50% of the excess 401k $$ NOT show up in a disability fae.....a pilot wud also lose the 32% 401k delta kicks in on ltd fae income.
If a senior pilot managed $30k excess 401 as part of ltd fae....his disability income would drcrease by $15k plus anothrr $5k loss from the 32% kick in frm delta for 401 contribution.
So its $20k/ year LESS in disability income if we sequester excess 401k cash to a CBDB plan.
And if its a 350A....its probably gonna be a 50K/yr disability income hit.
checkers boys.
Not only wud 50% of the excess 401k $$ NOT show up in a disability fae.....a pilot wud also lose the 32% 401k delta kicks in on ltd fae income.
If a senior pilot managed $30k excess 401 as part of ltd fae....his disability income would drcrease by $15k plus anothrr $5k loss from the 32% kick in frm delta for 401 contribution.
So its $20k/ year LESS in disability income if we sequester excess 401k cash to a CBDB plan.
And if its a 350A....its probably gonna be a 50K/yr disability income hit.
checkers boys.
Thank you Bob, and those like you, who have informed us of what has transpired in the past. I will gladly accept the responsibility of managing my own accounts, pay taxes when it is most beneficial to me, and not when some administrator think we should. Case in point, I will most likely be paying more taxes in retirement than I am today. Yes, it would behove me to pay some of those taxes in 2019, and not in 2040 (age 70) when the government says I "HAVE TO" make a minimum withdrawal.
Contact your reps. I did, and I was told that most people are in favor of such a plan. I am certainly not. Unless it is 100% voluntary (it most certainly will not be, probably more like VEBA) I don't want our NC to waste another second on such a plan.
Two groups I don't trust with my money: our employer, and our association.
