Thinking about Retirement Income?

It’s been a rough couple of year, but those of us hanging on to jobs of some form may be looking at our savings and investments and wondering,

What have you done for me lately . . .

If you are someone else’s employee, there isn’t much you can do. But, if you have your own company . . . or you care to create your own company either for the consulting advice you give or for the items you sell on etsy, you have options.

One of those options is a Defined Benefit plan. Nick Paleveda is the kingpin of DB plans and was kind enough to sit down with me for a few questions. In brief, the DB plan is great for those who have profits greater than $49,000 (after salaries). But with less than that . . . stick with your 401k and IRAs.

The reason I was turned on to DB plans? Great way to legally stash $300,000 a year, tax free. Also allows significantly more flexibility in your investment options for the funds. You can invest in private equity positions, your local dry cleaner for example, or regular publicly traded funds – much great range of options than your corporate 401k most likely.

First, a word of warning, you must own your own business to set up a Defined Benefit plan. A defined benefit plan must be set up by the corporation, LLC or sole proprietor who OWNS the business. An employee cannot set up one for themselves.

The main deterrent has been the perceived cost. As it turns out, you can set up a DB for yourself for approximately $600/year. Without further adieu, the interview with Nick:

Hi Nick, let’s dial into the needs of my Miss Mentor crowd. Most are Age 24-35, mostly pre-graduate school, some recently post grad school, many with significant educational debt.  Almost all are employed in relatively high paying positions (large law firms, consulting firms, Investment banks, $125k+), but have received scant knowledge (with entirely too much information) on personal finance. Some also have their own consulting practices or would like to . . . many make the financial decisions of the household – mix of married and unmarried.

1. What exactly is a Defined Benefit (DB) plan? I’ve heard about Keogh plans, but only know enough to be moderately dangerous.

From 1974-1986 the primary retirement plan in the USA was a defined benefit plan. This plan allowed tax deductible contributions, earnings to accumulate tax deferred and lifetime income or lump sums at retirement. In 1986, the Tax Reform Act of 1986 placed severe limitations on funding these plans, and hence, plan sponsors discontinued these plans. In 2001, EGTTRA brought back the tax and retirement benefits for these plans. These plans are NOT for everyone. They are for people who can afford to put away more than $49,000 for retirement. If you plan to put away less, use a profit sharing plan. Defined benefit plans are more expensive to set up and maintain than the profit sharing plan and are more regulated. The DB plan is regulated by the IRS, Department of Labor and PBGC.
2. How will a Keogh give me flexibility to handle life events: going back to school, getting married, buying house, having baby?

It will not help.

3. Does this create conflicts with spousal income, what if my status changes married-to-single or single-to-married?

No conflict with spousal income, but if you create a DB plan and become a participant, the spouse has certain rights to the plan that cannot be alienated using pre and post nuptial agreements.

4.Can this help me retire any portion of student loan obligations faster?


5. If I set up a DB plan for my consulting practice, can my spouse participate even though he has a plan at his place of work?

Only if the spouse also works in your company.

6. Is there a good rule of thumb for when to chose DB over other investment options?

A DB plan is not an investment. It is akin to opening a very huge IRA that must be funded ear year.

7. Are there any other considerations I have over-looked?
Yes- DB plans are very technical and very regulated. Many people in this age group would not be suitable for this plan.

8. Would this conflict with existing 401ks/IRAs/pensions?

Today you can have your 401(k) and defined benefit and profit sharing plan and deduct all three. This was result of a change in the Pension Protection Act of 2006.

9. Is there an optimal time to start a DB plan? Is that triggered by an income generation point or something else?

A defined benefit plan you should look at if you have profits after salary of $49,000 or greater.

10. How do you expect the power of the DB plan to play out over the next 5 years?

Defined benefit plans will become more popular in the small plan market as income taxes increase for people making over $200,000. The real popularity will depend on a persons desire to reduce taxes and increase retirement assets.

Learn more about small firm retirement plans from <a href=”″>Nicholas Paleveda</a> in his May 2009 Journal of Accountancy Article.

Behind the scenes with entrepreneurs – April Braswell

It’ finally here! – A one-on-one interview with April Braswell, relationship expert and online dating coach.  In this first part, we’ll hear how she was able to develop herself into the entrepreneurial woman she is today. This will be a 7-parter, so if you enjoy please keep checking back for more.

Also a little side note, this is my first video. So please be kind 😉 . Any suggestions to improve the video are welcomed. To begin the video, click on the link below.

Behind the Scenes with Entrepreneurs

Behind the scenes of being an entrepreneur

I recently interviewed April Braswell – Dating Expert and Online Dating Coach – as well as lost my IPOD. These may seem like 2 unrelated events, but with the loss of my IPOD I’ve been consequently listening to music less. I really do miss having a soundtrack to my life, but with less music blaring in my ears, my brain has made room for more thoughts. Substantial thoughts -thoughts that I had previously pushed to the back of my mind so I could blast more CSS in my ears and work out.

The main thought has been planting seeds.

Not the farming kind, but the figurative kind. Seeds that you plant today (mini-wealth building projects, acquiring new skills, building relationships with others, etc..) that will one day lead to bear fruit or not. In my interview with April, I aimed to pick the mind of an entrepreneur and see how she viewed herself as well her path to success. Her humble and warm nature made her easy to relate to, and she really showed that the word “CEO” or “President” are just words for people who’ve failed constantly but kept going.

She also emphasized the benefits of sowing many seeds. Plenty of seeds give you more chance of bearing more fruit, and like farming, not all seeds will turnout worth while. The ones that do will be the wealth builders, and the ones that don’t will be the learning experiences.

I love this philosophy, but applying it is a different thing. Her words definitely gave me some lingering thoughts. For instance, after I’ve chosen my “seeds” and planted them, how do I know when to keep going and when to see that the seed just won’t produce? I can be too persistent at times, but I guess that is part of the learning process.

I think I may just wait a bit longer to get a new IPOD. One because I am allowing myself a proper mourning  for my music. And two so that I can keep these thoughts growing and come up with a formula to success which will work for me. In the meantime, keep a look out for April’s interview and her advice on how to be an entrepreneur and her path to success – coming Tuesday, October 6th!

Can you handle the truth?

So in the vein of Jack Nicholson’s famous rant, “…You can’t handle the truth!” I share the following:

“The cost of failure, successful people know from experience, is very modest compared to the cost of inaction. Failure means you are smarter the next time. Inaction means there is no next time. There is only a lifetime of unhappiness – first of worry and then of regret.” – Michael Masterson
Don’t make a life of regret. Take action.

I recently had an Aunt chide me for not having a “real job.” I suppose she meant working for someone else, but the reality is, I have 3 employees who depend on me not having a “real job.” For what it’s worth, my family can’t understand that I am actually really enjoying self employment – one of the perils of an academic and professional (i.e. lawyers and doctors) family.

So if you are considering a blast into your own entrepreneurial adventure, I whole-heartedly support you. Do make the proper preparations, but once you have, damn the torpedoes, full speed ahead! Get to it!

Want to read more of Masterson’s work? Try his ezine Early to Rise or one of his books on Amazon.

How to Be an Entrepreneur – Angel Investors

YOU SPOKE! One of the clearest survey results that came was an interest in entrepreneurship. While I don’t believe one can teach another, “How to be an Entrepreneur,” I can share the interviews I have collected over the past few years and the information I use to refine my own approach. To that end, let’s start with a conversation about Angel Investing.

Angel Investors are the bridge between funding from your friends and family and the Venture Capital investors. Some Angel Investors will offer money for an equity stake while others will offer a loan that usually requires a smaller equity stake ultimately. For example, one deal I am considering right now (casual terms):

Choice A: I relinquish 20% of the equity for a 30% infusion, provide a preferred annual return of 10% and payback the original investment in 3 years. The 20% equity remains in the hands of the Angel Investors.

Choice B: The Angels receive 51% of the current equity today for an infusion of 30%, receive a 10% preferred annual return and principal payback over 3 years. As the principal is repaid, the equity stakes are reconfigured. Once all principal is repaid, the Angel Investors retain a 5% interest in the company with no preferred return – dividends only if we pay them.

That second one looks a little crazy, but this is an acquisition so the angels will be providing a guarantee on the bank note that covers the other 70% of the purchase price. Since the current owner is willing to finance the purchase and the company is very cash flow positive, I will probably do a multi-step Management Buyout instead. If you have other thoughts, please do share!

The point at which you consider seeking Angel Investors is when you are very serious about the growth of your company, you have studied thoroughly the capital needed to grow your company and you have exhausted your friends and family. For most, this is about the time you need $250,000 or more. It is also after you have developed the beta product/service to the point that you can show some kind of result.

If all you have is an idea, PLEASE, do not start pitching – save your energy, but do start meeting potential investors: angels and VCs. Get some proof of concept before you do any pitches. I prefer to see a customer list – people who have purchased or pre-purchased already. At the very least, a list of people willing to commit to a purchase when the product is done. If you can do that, you can sail through funding rounds.

Then again, if you are a serious Entrepreneur, you know that your number 1 task is to sell your product or service. Don’t wait to have sales staff or a sales force. Get out there and SELL!

Want a good, quick read from a serious Angel Investor? How to be an Entrepreneur – Angel Investors (this link takes you to another site). Who knew Twitter could be so useful! You can follow me on twitter: Miss Mentor .