Tax-Saving Strategy for Business Owners
Combining a cash balance plan with a safe harbor 401(k) allows business owners to make large deductible contributions for themselves (up to $150,000 or more annually) while controlling employee benefit costs.
TURNING TAX SAVINGS INTO RETIREMENT WEALTH
- Fully tax-deductible retirement contributions and fees
- Contribution can be as high as 90% of compensation1
- Opportunity for tax-deferred growth
IS A CASH BALANCE PLAN RIGHT FOR YOU?
- Are you looking to make larger tax-deductible contributions than allowed in a SEP IRA or 401(k)?
- Are you willing to make contributions to employees, while controlling the cost?
- Do you expect consistent cash flow for at least the next five years?
HOW DOES IT WORK?
The sample below illustrates the potential contributions and tax savings possible with the cash balance/safe harbor 401(k) combination plan:| Age | Compensation | 401(k) Salary Deferral |
Safe Harbor 401(k) Profit Sharing |
Cash Balance | Total Contribution | |
| Owner | 62 | $330,000 | $30,000 | $18,260 | $341,905 | $390,165 |
| Employee | 27 | $20,000 | $1,460 | $350 | $1,815 | |
| Employee | 34 | $39,000 | $2,860 | $350 | $3,210 | |
| Employee | 25 | $21,000 | $1,540 | $350 | $1,890 | |
| Employee | 30 | $36,000 | $2,640 | $350 | $2,990 | |
| Total for Employees | $116,000 | $8,500 | $1,400 | $9,905 | ||
| Total Company | $446,000 | $30,000 | $26,765 | $343,305 | $400,070 |
Cash balance calculation provided by Dedicated DB.
1Age, income, and years in the business determine exact percentage allowed.
2Current year tax deferral estimates at 37% combined federal and state tax rates.
This information is for educational purposes only. Stifel does not provide legal or tax advice. You should consult with your legal or tax advisors regarding your particular situation.
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