Retirement Plan Options for Small Businesses

The February 2018 Journal of Accountancy magazine contains an article titled “Help small businesses choose the right employee retirement plans“. Listed below are two other retirement plan opportunities available to small business owners not discussed in the article.

Cash Balance Plans

A Cash Balance Plan (“CBP”) is a specific type of Defined Benefit Plan. Most CPBs are being put in place by small business owners, as a CBP allows business owners to contribute far more money on a tax-deductible basis than if they use a 401(k) Plan alone. A business owner can accumulate $2.7 million in a CBP for himself or herself in as little as 10 years. Click here to read our Cash Balance Plan FAQs.

Voluntary After-Tax Employee Contributions in Solo 401(k) Plans

In the example provided in the article listed above, a 51-year old owner paid himself $50,000 in W-2 wages. Based on his age and pay, he can defer $24,500 into his 401(k) Plan and his business can contribute $12,500 in profit sharing for him. Assuming the plan document is set up to allow for voluntary after-tax employee contributions, he can also contribute $19,000 in after-tax employee contributions. He can then do an in-plan Roth conversion on these after-tax dollars. This is what we at Lurie call the “super-sized” back-door Roth idea.

Please contact Wendy Frame or Jeremy Palm for help on choosing the right retirement plan(s) for your business. We look forward to hearing from you.

Wendy Frame, MBA, ERPA

Jeremy Palm, QPA, QKA









Share Post: