Cash Balance Plans for Business Owners
The new tax law is a lucrative opportunity for many pass-through businesses. As long as the owner’s income does not exceed a certain threshold, businesses can earn significant tax savings. In this installment of CenterStage, Todd Yawit – the director of retirement services at Saxon – has provided the following insightful information on Cash Balance Plans and how they can be used to help businesses earn significant tax savings.
The New Tax Law
With the new tax law, some business owners can now deduct up to 20 percent of their qualified business income (QBI) as long as their income falls below a certain threshold. Todd explained, “The new tax law that went into effect treats certain business types differently than it used to. In order to take advantage of the full deductions, certain business owners might need to lower their income to accommodate getting the deductions.”
deductions.” The full 20 percent deduction is available to companies that have an income that falls below the set threshold amount. Because of this, many businesses will have lower effective tax rates. Business owners whose income does not fall below the set threshold amount can still reap significant benefits by placing the difference of their income in a Cash Balance Plan. This will cause their taxable income to fall below the set threshold.
What Are Cash Balance Plans
Cash Balance Plans are a type of retirement plan that combines the maximum benefit amount associated with Defined Benefit Plans with the flexibility and portability of a 401(k) plan.
Cash Balance Plans are trustee directed and assets are invested into a single pool. Participants receive individual statements with hypothetical account balances on them.
Cash Balance Plans are often preferred over traditional Defined Benefit Pension Plans. Individual statements received by participants reflect what participants could potentially collect in the form of a lump sum, if eligible.
Here are the top 6 features of a Cash Balance Plan:
- Niche Retirement Plan – Cash Balance Plans are a great fit for physician groups, dental groups, and other professional practices, as well as small business owners or self-employed individuals.
- Tax Deferred Contributions – All contributions are tax-deductible, and the investment earnings are tax-deferred. Assets are not subject to income tax until they are withdrawn from the Cash Balance Plan or a rollover IRA.
- Higher Contribution Limits – Cash Balance Plans allow for high tax-deductible contributions than a 401(k). The maximum contribution amount is dependent on the individual’s age and normally increases as participants get older.
- Creditor Protection – Plan assets in a Cash Balance Plan are ERISA creditor protected.
- Flexible Plan Design – Cash Balance Plans can easily provide for many different levels of benefits and contributions.
- Supplement to a 401(k) Plan – Cash Balance Plans can be used as a companion to a 401(k) plan, providing a more favorable contribution cost design.
How Can Cash Balance Plans Help Business Owners Take Advantage of the New Tax Law?
“One of the best ways for a business to lower their income is to make contributions into a retirement plan. The advantage of a Cash Balance Plan retirement plan is it benefits the owner and key other people, as opposed to a 401(k) where it’s benefiting everybody,” explained Todd.
The 20 percent pass-through deduction is “phased out” for business owners with taxable income between the threshold limit and phase-out limit. By taking advantage of Cash Balance Plans, businesses can fall within these limitations.
Please contact Todd Yawit with any questions regarding Cash Balance Plans. You can reach him at (513) 573-0129 or send him an email at tyawit@gosaxon.com.
The Latest: House passes sweeping GOP tax overhaul
WASHINGTON (AP) — The Latest on House consideration of the tax overhaul (all times local):
1:50 p.m.
The House has passed a sweeping Republican tax bill cutting taxes for corporations and many people. It puts GOP leaders closer to delivering to President Donald Trump a crucial legislative achievement after nearly a year of failures.
The House voted 227-205 along party lines to approve the bill, which would bring the biggest revamp of the U.S. tax system in three decades.
Most of the House bill’s reductions would go to business. Both the Senate and House would slash the 35 percent corporate tax rate to 20 percent and reduce levies on millions of partnerships and certain corporations, including many small businesses.
Personal income tax rates for many would be reduced through some deductions, and credits would be reduced or eliminated. But projected federal deficits would grow by $1.5 trillion over the coming decade.
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12:15 p.m.
Democrats are using new projections by Congress’ nonpartisan tax analysts to call the Senate Republican tax bill a boon to the wealthy that boosts middle-income families’ taxes.
The Joint Committee on Taxation estimated that starting in 2021, many families earning less than $30,000 would have tax increases under the bill. By 2027, families earning up to $75,000 would face higher levies, while those earning more would get tax cuts.
Republicans say the new calculations reflect two provisions in the bill.
The Senate measure ends personal income tax cuts beginning in 2026 because Republicans needed to reduce the bill’s costs to obey the chamber’s budget rules.
It also abolishes the requirement under former President Barack Obama’s health care law that people buy insurance. That means fewer people getting federally subsidized coverage — which analysts consider a tax boost.
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11:35 a.m.
President Donald Trump has arrived at the Capitol to encourage House Republicans who are about to push a $1.5 trillion tax package through their chamber.
The closed-door meeting comes as GOP leaders hope that by Christmas, they will give Trump and themselves their first legislative triumph this year.
House approval was expected later Thursday of the plan to slash corporate tax rates and reduce personal income tax rates while eliminating some deductions and credits.
The Senate Finance Committee is aiming to pass its separate version by week’s end. But some GOP senators want changes.
Republicans say the final measure will bestow lower levies on millions of Americans and spur economic growth by reducing business taxes. Democrats say the measure is disproportionately tilted toward corporations and the wealthy.
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10:45 a.m.
Republicans drove a $1.5 trillion tax overhaul toward House passage Thursday. But Senate GOP dissenters also emerged in a sign that party leaders have problems to resolve before Congress can give President Donald Trump his first legislative triumph.
Trump was heading to the Capitol for a pep rally with House Republicans, shortly before the chamber was expected to approve the measure over solid Democratic opposition. There were just a handful of GOP opponents in the House, unhappy because the measure sharply curbs deductions for state and local taxes, but all agreed that passage seemed certain.
Like a similar package nearing approval by the GOP-led Senate Finance Committee, most of the House measure’s reductions would go to business. Personal income tax rates for many would be reduced, but some deductions and credits would be reduced or eliminated. Federal deficits would grow by $1.5 trillion over the coming decade.
You can read the original article here.
Source:
Associate Press (16 November 2017). "The Latest: House passes sweeping GOP tax overhaul" [Web blog post]. Retrieved from address https://apnews.com/b3297c1e443b40049beebcd832aaadc8?utm_campaign=SocialFlow&utm_source=Twitter&utm_medium=AP
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