Do Your Business Owner Clients Need Tax Deductions for 2020? There’s Still Time and Cash Balance Plans Are the Way.

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The Setting Every Community Up for Retirement Enhancement Act of 2019, (SECURE Act) was signed into law on Dec. 20, 2019. The bill included significant provisions with the goal of increasing access to tax-advantaged accounts and supporting retirement readiness.

One important provision from the SECURE Act was that it extended the deadline for businesses to sponsor a defined benefit, cash balance, and profit sharing plan for the 2020 plan year.

What This Means For Your Clients
Prior to the SECURE Act, a sponsor needed to adopt these plans by December 31. Now, a business owner can establish a new 2020 plan by their 2021 corporate tax return due date (including extensions).

Depending on the type of business, your client’s deadline may be extended as far out as October 15, 2021.

NOTE: The deadline to make employee deferral contributions into a 401(k) plan remains unchanged. However, while we can’t allow an employee or an owner to make 401(k) deferrals, we can still design a plan to include 2020 profit sharing contributions.

Does The Client Want More Deductions Than Just What Is Available With A Profit Sharing Plan?
If an owner wants to put more money into a retirement plan than what is allowed within a 401(k) profit sharing plan, we then talk about adding a pension plan. A cash balance pension plan is a type of defined benefit plan that’s often referred to as a “hybrid plan” because it offers the best of a DC and DB plan: high contribution limits and ease of understanding and portability.

Cash balance plans have long been known to reduce tax burdens. In addition to helping accelerate retirement savings, these unique plans allow a business owner to contribute amounts far exceeding the defined contribution plan limits (e.g., $19,500 for 401(k) plans, and $58,000 for a 401(k) with profit sharing plan under the age of 50). In fact, an owner can contribute up to 2-5 times more, resulting in hundreds of thousands of dollars a year in some cases – and reaping the added benefit of a significant tax savings.

See our sample illustration below for company with five employees (including the owners):

Who Is A Good Candidate?
This type of plan design tends to lend itself best to companies who are sole proprietors (with no employees) all the way up to employers with 20-30 employees.

There’s Still Time
Your clients can still adopt a defined benefit, cash balance, and profit sharing plan for the 2020 plan year, up to the Fall of 2021 – depending on their type of business and tax filing status. Please contact CRS to receive specific deadlines for your individual clients.

Want a Sales Tool To Use With Your Prospects?
If you’d like to learn more about cash balance plans, please download our brochure and FAQ by clicking HERE.

Alex Powell has been in the retirement plan industry since 2014 and is our Regional Director of Sales in Southern Ohio, Indiana and Kentucky. Alex can be reached via email at .

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