2018 was another strong year for our IRS-approved Defined Benefit and Cash Balance plans. We worked with hundreds of advisors to open plans for high income self-employed individuals and small business owners seeking tax reduction strategies—most of whom have never opened these plans before. Along the way, we also encountered several myths we want to clear up for you. Here are the top three:
Some advisors believe defined benefit plans fix the contribution timeframe and dollar amount from day one. What they don’t realize:
Each year, we calculate a contribution range based on income, accumulated assets and other factors. A well-designed plan builds in flexibility.
If a client’s situation changes, so can their tailored plans.
While these plans shouldn’t be used for a one-year windfall, many are active for 3 to 5 years.
While the Tax Cuts and Jobs Act (TCJA) lowered tax rates for C corps, owners of S corps, partnerships and sole proprietorships might still need high-contribution retirement plans. That’s because:
Outsized Defined Benefit and Cash Balance plan deductions may qualify owners of pass-through entities to take the Section 199A 20% deduction by reducing taxable income below the $160,700 threshold ($321,400 if married filing jointly) for 2019.