Cash Balance Plans Can Combat High Taxes

tax bracket

With the recent implementation of a new tax bracket and the burden of additional healthcare taxes, employers are seeking tax savings now more than ever. Unfortunately, “above the line” tax deductions are scarce these days.

Consequently, employers are reducing their tax bill by taking advantage of qualified retirement plans. Retirement plan contributions, such as those to a cash balance plan, reduce both taxable income and adjusted gross income (AGI), which translates to lower tax brackets and lessens the impact of increased tax rates.

  • Investment Tax – An additional 3.8% tax on unearned net income is now imposed on individuals whose AGI is more than $200,000 (or $250,000 for married couples). (This is in addition to the capital gains & dividend tax increase from 15% to 20%.)

THE CASH BALANCE PLAN SOLUTION:  Investments held in a qualified retirement plan are never subject to investment tax.

  • Medicare Tax – There is an additional 0.9% Medicare payroll tax on earned income above $200,000 for individuals (or $250,000 for married couples).

THE CASH BALANCE PLAN SOLUTION:  Dollars contributed to the plan that would otherwise have been paid in the form of wages avoid Medicare tax entirely.

  • Phase-out of Deductions – The ability to itemize certain deductions is phased out for individuals whose AGI is greater than $250,000 (or $300,000 for married couples).

THE CASH BALANCE PLAN SOLUTION:  Contributions to retirement plans have not been phased out.

  • Top Marginal Rate – The top rate is now 39.6% for individuals whose taxable income is more than $400,000 (or $450,000 for married couples).

THE CASH BALANCE PLAN SOLUTION:  Contributions to a qualified plan are deductible, and may cause earnings to drop low enough to prevent inclusion in the top marginal rate.

Qualified Plans, specifically a cash balance plan can have a measurable impact on your tax bill.

Wealth Accumulation

Not unlike the importance of diversifying investments within a portfolio, accumulating savings in a qualified retirement plan provides a meaningful supplement to other accumulations of wealth such as your practice, partnership interests or real estate.

How much will you need at retirement? A cash balance plan, will allow you to accumulate significantly more than a 401(k) plan over the same time frame.  We can design a plan to help you achieve your retirement goals.

Employee Benefits

In addition to tax deferral and wealth accumulation, qualified plans are a great tool for employee recruitment and retention.

cash balance plan, when paired with a 401(k) profit sharing plan, can provide understandable benefits for your employees with the design flexibility to suit your specific needs.


Contact Our Cash Balance Plan Team

Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide.
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