Cash Balance Pension Plans Offer Clients a Solution to Large Tax Burdens

Posted March 29, 2023

In Cash Balance, Cash Balance Plan, Plan Types, SECURE Act 2.0, Tax Deductions

We’ve heard from many concerned clients who are looking for ways to increase their retirement savings and reduce their current tax liability. This article discusses how cash balance plans can do both of these things.

The SECURE Act Extends the Deadline to Sponsor Cash Balance Plans

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), signed into law on December 20, 2019, allows business owners to sponsor cash balance and profit sharing plans past the December 31 deadline (as was the requirement prior to the SECURE Act).

Since plans no longer need to be established before the end of the calendar year, clients can start a cash balance or profit sharing plan by the date the company files its tax return. Contributions must be made by the deadline of the company’s tax return (which includes extensions) – but no later than September 15th.

For sole proprietorships and C-Corporations, the tax deadline is April 15th and September 15th (if an extension is filed).

For partnerships and S-Corporations, the tax deadline is March 15th and September 15th (if an extension is filed).

This means that for most small business owners, there is still time to start a retirement plan for last year!

NOTE: If they have already filed their 2022 taxes, they will be unable to establish a new plan for 2022 but they still can for 2023.

Who is a Good Candidate?

Businesses with a few (or no) employees who are not owners
Medical or dental groups
Sole Proprietors without any employees
Highly profitable small businesses
Larger companies with specific goals targeting key employees

Sample Client Scenario*

Let’s take a look at how a new cash balance pension plan can benefit ACME Company.

ACME Company started to see an increase in profits in 2023 and wants to take advantage of additional 2022 contributions and both owners are over age 50 (increasing their allowable contribution limits).

Since they haven’t yet filed their taxes, they can quickly extend their C-Corp tax filing deadline to October 15, 2023.

Adding a cash balance plan can help the owners contribute over $200,000, which would be a significant income reduction and provide them with over $135,000 in tax savings for 2022.

*Figures used are for illustrative purposes, contact CRS for a customized proposal for your clients.

Cash Balance Plan Deadlines

Event	Deadline (for a calendar-year plan)
Set Up a Cash Balance Plan	Tax Filing Deadline (including extensions)
Fund a Cash Balance Plan	Tax Return Deadline
Minimum Funding Deadline	September 15

In Summary

Cash balance plans are viable options for your clients who want to accelerate retirement savings and receive significant tax deductions.

Please contact CRS to learn more and to discuss a specific client that you have in mind.

Be sure to download our cash balance plans brochure here>>