Your Successful Professional Clients May Want More Tax Deferred Retirement Savings

Many "Professionals" (surgeons, attorneys, accountants, engineers, successful business owners) would like to put away more than the $57,500 that is allowed when using a 401(k) Plan. A Cash Balance 401(k) Combo might allow them to shelter an additional $100,000 to $200,000 per partner or owner without increasing the cost for employees by a large percentage. Think of the employee cost not being worse that 7.5% of compensation plus about $1,000 - and it could be quite a bit less in the right circumstances. Many of these types of firms may already spend that much on contributions for employees in their 401(k) plan, so there may be no increase in costs.

Our TPA firm, Plan Design Consultants, Inc. can work with you to get illustrations for your client based upon their specific circumstances and objectives.  In all likelihood, a Cash Balance Plan could be utilized to provide more in tax shelter for 2014.  We are here to help.

Adding Cash Balance Solved A Need for a Professional Firm

An engineering firm told us they wanted to continue to use their 401(k) plan for their 42 employees without much change (3% Safe Harbor plus 1.5% Profit Sharing), but that they would be interested in getting more money put away for the Owners and several key people. They gave us a budget of $50,000 additional for two owners; $30,000 for the other two owners and $10,000 each for three key people or $190,000 total.

We included the seven of them for the $190,000 budget and also covered their 10 lowest paid employees and the cost for them to pass all discrimination testing, etc. was only $6,300. So, $190,000 for principals of $196,300 total is 96.8%.

The concept of adding a Cash Balance Plan in combination with a 401(k) Plan is a great tax deferral technique that CPA's should make sure their successful clients evaluate. Have the client send us a census and a statement as to what they would like achieve and we can generate an illustration - there is not fee for doing this - just the expectation that we can compete for their business.

Retirement Plan Limits for 2014

Here is a brief recap of the retirement plan limits for 2014:

Salary Deferral Limit for 401(k) and 403(b) Plans is $17,500. Additional Salary Deferral for someone Age 50 by 12/31/2014 is $5,500.  Therefore a 50 year old can defer up to $23,000. The maximum amount of compensation counted for plan purposes is $260,000. Maximum Annual Additions Limit from all contributions is $52,000 and you can add $5,500 if age 50 or more if salary deferrals available. The maximum Defined Benefit Plan retirement amount is $210,000 per year. The amount of compensation in 2014 that would make someone an HCE in 2015 is $115,000. The Social Security Taxable Wage Base for 2014 is $117,000.


For a more complete chart go here:

 http://401kacademy.com/storage/Copy%20of%20limitations2014_Orange.pdf