Call Us(925) 307-5454
You Can Still Secure a Tax Deduction of up $250,000.00 for 2020! Just set up a Defined Benefit Plan for 2020 before you file your tax return.
Who Should Consider a Defined Benefit Plan?
The ideal candidate for a defined benefit plan is a business owner who is age 40 or older. A plan sponsor with no other employees or only young employees will have the lowest non-owner costs.
The plan sponsor must be aware that the contributions are generally mandatory and that future cash flow will support the plan's continuation. How a defined benefit plan works
Why is a defined benefit plan such a great retirement strategy? Stated, it allows the participant to contribute a substantial amount into retirement and take a significant tax deduction. Let's look at a basic example below.
Assume a 54-year-old plumber who earns $500,000 a year. Let's also assume that the plumber is the only eligible full-time employee. Depending on compensation, the plumber could contribute approximately $250,000 into a defined benefit plan. Assuming a tax rate of at least 40% (federal and state), this is a tax savings of $100,000. Not too bad!!
Are you considering a defined benefit plan? You are definitely on the right track. Substantial tax savings, high contribution limits, and excellent employee benefits are advantages under a defined benefit plan.
Thanks to the SECURE Act, you now have until you file a tax return to get a plan set up (including tax extensions).
It would help if you ran defined benefit plan illustrations and multiple scenarios to find the best plan to fit the company.
Want us to perform a tax assessment of the pre and post-tax deduction? Let's talk; you can reply to this email or book an appointment here.
Book a time here, and let's chat.
Miguel A. Palma, CPA, PFS, CGMA
Founder of Palma Financial Services, Inc.
PFS has achieved positive results for its clients, but our top clients' successes are not typical. Because past performance is not a predictor of future success, you may have more or less success depending on many factors, including your background, experience, work ethic, client base, and market forces. Additionally, at times we may discuss the law or new and pending legislation. Please know our understanding of it is continuously changing. You cannot and should not rely upon these communications for legal, financial, or accounting advice. For the latest updates, set up a time here.
Note: This is not currently law yet and may be subject to change.