Best Tax Cutting and Retirement Savings Tool

Small Business Owners: Here’s Your Best Tax Move

If you own a successful small business or professional practice, the single biggest drain on your wealth is probably taxes . . . and potentially the best way to help plug this drain is to make a large, annual, tax-deductible contributions to an IRS-approved qualified retirement plan called a cash balance plan.  True, few terms can be more yawn-inducing than “cash balance plan”.  But for those who contribute to cash balance plans, saving tens of thousands of dollars each year on taxes while rapidly building a multi-million dollar retirement nest egg can be quite exciting.

Many small business owners start off by contributing to 401(k) plans or SEP-IRAs, but the IRS contribution limits for these plans are much lower than for cash balance plans.  More and more, owners of successful businesses with a small number of employees are opening cash balance plans to significantly cut their tax bills while accelerating their retirement savings.  Some high-income business owners are able to make very large contributions that can enable them to slash their current year tax bill by $40,000, $60,000 or even $100,000, depending on their circumstances.

Cash balance plans are often paired with Safe Harbor 401(k)/profit sharing plans to provide the highest possible tax savings for the business owner.

Unlike a 401(k) plan or SEP-IRA, each cash balance plan is custom-designed to meet the specific tax reduction and retirement savings needs of the business owner.  The allowable plan contribution is calculated based on several factors, including age, compensation, and years of employment.

Here are several reasons that cash balance plans are increasingly popular with small business owners and professional practices:

  • Large annual tax deductions for business owners
  • Much higher contribution limits than other retirement plans
  • Flexible structure to meet specific needs of business owners; for example, business partners can have different contribution levels
  • The plans allow employers to offer retirement benefits to their employees while retaining a high degree of control over their contributions
  • Investments grow tax-deferred, building wealth more rapidly
  • Assets are protected in case of lawsuit or bankruptcy
  • At retirement (or plan termination) assets can be rolled into an IRA to continue tax-deferred growth

Consider the following example, a small medical practice with an owner and four employees:

So, how do you know if a cash balance plan is right for your business?  Just ask us.  We only need a few pieces of information about your situation to generate a complimentary tax-savings proposal for you.  There is no cost to you for this service and no obligation whatsoever.

If you find that a cash balance plan works for your situation, you will have to move quickly if you want to save on your 2017 tax bill.  Plans must be established by December 31 of the year for which contributions are made.  However, it takes time to devise the plan and create the plan documents, and pension administrators are typically very busy in the last couple of months of the year.  Thus, it is best to begin the process of establishing your plan right now.

If you provide us the few pieces of information listed below, we will get back to you in 48 hours with a preliminary proposal that will outline how much in tax you could save each year by establishing a cash balance plan.  

Business Entity Type (e.g. S-Corp, sole proprietor, LLC)

Owner’s Annual Income

Date Business Started

Owner’s Age

Age and Salary of each Employee

A cash balance plan is not right for everyone, but for those in the right circumstances it can be a very powerful tool for both reducing taxes and building wealth.

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Peter Thoms, CFA, MBA

Peter Thoms, CFA, MBA

Peter Thoms, CFA, founded Orion Capital Management LLC in April 2002. Peter has extensive experience managing investment portfolios for clients pursuing a wide range of financial goals.

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