It’s February, which means that Spring Baseball is just around the corner! However, it also means it’s Tax Season, and many business owners may be looking for additional deductions. Did you know that a Cash Balance Pension Plan may be valuable for business owners looking to reduce their taxes?
Tax-Deductible Contributions: Employer contributions to a Cash Balance Pension Plan are typically tax deductible as a business expense. This implies that by contributing to the plan, business owners may minimize their taxable income and, thus, their tax obligation. For business owners, particularly those in higher tax brackets, the ability to deduct payments to a Cash Balance Pension Plan can result in significant tax savings.
Higher Contribution Limits: Compared to retirement savings options like 401(k) plans or IRAs, Cash Balance Pension Plans often provide higher contribution limits. With this, business owners can increase their annual plan contributions, which may also increase their tax deductions. For business owners who want to maximize their tax deductions while saving for retirement, the higher contribution limits of Cash Balance Pension Plans can be very beneficial.
Tax-Deferred Growth: Cash Balance Pension Plan contributions grow tax-deferred, allowing the money to grow faster than taxable accounts since the investment earnings are not subject to current income taxes. Consequently, business owners can take advantage of compound growth over time, increasing their tax deductions.
Income Shifting: Business owners may be able to transfer money from their company to their retirement accounts in a tax-efficient manner by using a Cash Balance Pension Plan. Business owners can lower their current taxable income and finance their personal retirement savings at the same time by contributing to the plan for themselves and their employees. By shifting their income, business owners can save for retirement while reducing their current tax bill.
Retirement Income Taxation: Business owners can immediately deduct their payments to a Cash Balance Pension Plan from their taxes, but when they receive their retirement income, they must pay regular income tax. If the business owner is in a lower tax bracket after retirement, their income may be taxed at a lower rate than it would have been in earlier years. This may mean significant tax savings for business owners in their retirement years.
Business owners should consult a qualified tax professional and a retirement plan expert when considering whether a Cash Balance Pension Plan may meet their objectives. At Actuaries Unlimited, Inc., we specialize in creating customized Cash Balance Pension Plan designs for each client. Please feel free to contact us for a no-obligation consultation.
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