Why pay more taxes than necessary?
We believe the purpose of an employer starting and maintaining a retirement plan is to help employees save for retirement and reduce the tax burden to the employer. Through careful plan design, an employer can maximize contributions to their highly compensated employees while offering a benefit to their lower paid staff. Poor plan design can be costly to the employer through unnecessary contributions, taxable refunds to highly compensated employees or inefficient use of plan features.
Now is the time to use all aspects of the retirement rules and regulations to your benefit. Plan sponsors can help employees make contributions well beyond the 401(k) annual deferral limits of $53,000 for 2015. Many business owners and partners of firms are looking for larger tax deductions and accelerated retirement savings. Cash Balance plans may be the perfect solution for them.
A Cash Balance plan is a type of IRS-qualified retirement plan known as a “hybrid” plan. Each participant has an account that grows annually in two ways: first, an employer contribution and second, an interest credit, which is guaranteed rather than dependent on the plan’s investment performance.
Cash Balance contributions reduce both taxable income and adjusted gross income (AGI), so high income earners may move into a lower tax bracket. The following taxes may be reduced or eliminated by contributing to a Cash Balance Plan:
- Investment tax (currently 3.8% on individuals making $200,000)
- Top Marginal Income (increased to 39.6% for individuals earning more than $400,000)
- Medicare Tax (an additional 0.9% Medicare payroll tax on income above $200,000)
- Phase-Out of Tax Deductions (itemizing certain tax deductions has been phased out for individuals making more than $250,000)
Who is an ideal candidate for a Cash Balance Plan?
- Business owners seeking a tax deduction of more than $50,000 or making more than $250,000 per year
- Highly profitable companies of all types and sizes
- Successful family businesses and closely held companies
- CPA, law firms, medical groups and professional service firms
- Older owners who need to squeeze 20 years of retirement savings into10 years
Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Infinity Securities (a registered broker-dealer, member FINRA, SIPC). Infinity Securities and Karp Capital Management are not affiliated companies.