A business owner can accumulate about $2,600,000 in a traditional defined benefit or cash balance plan. To illustrate these results, let us assume that the company owner is age 52 and is projected to retire at age 62; he will be able to contribute and get an annual tax deduction of between $175,000 and $260,000. Even greater contributions and deductions are possible if the plan is already in existence for a few years.
In addition, the owner can annually contribute and deduct $23,000/year as elective deferrals to a 401(k) plan, plus $15,600 as a profit sharing plan contribution. The total tax deductible contribution may be between $213,600 and $298,600/year.
If the business is not a professional service employer and it employs at least one non-owner employee, the $15,600 profit sharing plan contribution mentioned above goes up to $34,500. The total tax deductible contribution could be then increased to between $232,500 and $317,500/year.
Also remember, when distributions commence from the plan, you receive favorable tax treatment. There will be a cost to get these huge tax deductible contributions; you will need to make a contribution on behalf of any eligible non owner employee. Generally, that cost is a small amount. There are also set up and ongoing administration costs. However, the benefits may far outweigh these carrying costs.
Are you interested in learning more?
Please contact William Nusblat, Vice President at [email protected], or call 212-284-902