I have a client who makes $150k a year and has 12 employees. Does a plan work for him?

I don’t think a plan will make sense. For these plans to work, you need to have the following:

1. Owner only plans (including spouse)
2. If the client has employees you want owners that are older with high W2s

I would guess for Paul that we would have to get his W2 up to $250k plus and then he may only get a contribution of $50k and he would have to give $50k to employees. Owners should assume that they will have to give 10% to each employee. So I don’t think the economics work.

As you are screening your clients during tax planning, you want to ask them two questions:

1. What is the largest amount you would want to contribute for 2022?
2. What is the most you would want to allocate to your employees?

If you can get me those numbers I can determine if a plan might work.

But as a general rule, these plans only make sense when a plan has a lot of employees if the owner has real high income and is older. So I would look for doctors, dentists and high income professionals.