Have you ever wondered what other creative business owners are doing differently to defer taxes and save for retirement? No, I’m not talking about a 401(k), SIMPLE IRA, or a SEP. I’m talking about a plan that affords you the opportunity to take advantage of large tax and retirement limits that aren’t typically available in traditional retirement plans.
If you haven’t heard already, you need to know about the cash balance plan, a defined benefit retirement plan designed for accelerated tax-deferred savings. For instance, in 2016, a 40-year-old employee could defer as much as $80,736 into a cash balance plan on top of their $18,000 deferral to a 401(k) plan. In essence, it allows this employee to pack away $98,736 in 2016 when a traditional defined contribution plan would have only allowed for a $53,000 contribution. The older the employee, the higher the maximum contribution. At age 50, an employee could contribute as much as $155,908 to a cash balance and 401(k) plan combined compared to the $59,000 traditional defined contribution limit. Wow!
So how do you know if it’s right for you and your company? Here are 4 basic things to consider:
- Your owners or key executives want to defer more than $53,000 a year into their retirement accounts,
- Your business has demonstrated steady profits,
- You are willing to contribute three to four percent to employees, and
- Your owners are age 40 or older.
There is also a solo cash balance version for small, closely-held businesses.
My name is Valerie Leonard and I’m your not-so-typical financial advisor who works with people just like you every day to help find creative business solutions that others often miss. If you want to learn more about whether the cash balance plan could help reduce your tax pain and save for retirement, let’s chat. You’ll want to know all the facts before going down this road, but I’d love to show you how powerful this strategy can be when designed and optimized correctly.