Accidental HR℠ and Hybrid Retirement Plans. Say what, now?

If you’re like most business owners out there, you’re trying to maximize your corporate retirement plan contributions each year to lower your personal tax liability and your business tax liability. (Heck, HR Resolutions even added a retirement plan this year – it really CAN be done!) But, the IRS puts limitations on what can be contributed to a 401k plan. If a person is under 50 years old, the maximum annual contribution is $52,000. If a person is 50 or older, they can contribute up to $57,500 for 2014.

For business savvy owners who are looking for ways to save additionally beyond these limits, there is a solution called a Cash Balance pension plan. This is a hybrid plan that, when combined with a safe harbor 401K profit sharing plan, can dramatically increase tax deferred savings. Cash balance plans are qualified defined benefit plans that use actuarial calculations to maximize business owner contributions. These plans allow for categorizing employees in your company into different groupings. An actuary uses contributions in both plans to pass nondiscrimination testing and maximize certain employee groups which the owner designates to receive increased benefits. I know, it’s a mouthful!

These hybrid plans work extremely well when an owner is older than most of their workforce and where their eligible W-2 compensation is greater than the majority of the workforce. If you are looking to boost retirement savings and lower your personal tax liability, this solution may be one to consider.

HR Resolutions knows this can be confusing. You want to do it right and get the best bang for your buck but it’s just a bit overwhelming. We can help guide you in the right direction and to the right people for sound and helpful advice. Give us a call today and be sure to connect with us on LinkedIn.




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