You may think a qualified plan won’t work for you because you have to contribute for your employees as well. But, did you know that a qualified plan can actually save you money? The current tax savings may be greater than the contributions needed to be made on behalf of your employees.
Consider the following:
Our business owner is 56 and makes $265,000. There are four employees ranging in age from 28 to 42 with a total combined compensation of $196,000. The business has profits and is looking for ways to reduce their taxes.
A qualified plan design specialist was able to design a qualified plan where the business was able to contribute $62,800 and the business owner would receive 84% of the plan contribution. Let’s look at how the cost of the plan breaks down:
|Business Income Tax Rate:||34%|
|Contribution for Business Owners||$53,000|
|Contribution for Employees:||$9,800|
|Tax Deduction on Plan Contribution:||$21,352|
|Net After Tax Cost of Plan:||$41,448|
|Savings to the Business after Cost of Employees:||$11,552|
In other words, if the business owner decides not to contribute to a qualified plan, there will be taxes due on the $62,800 totaling $21,352 leaving them with only $41,448. With the plan the business owner has $53,000 in their own qualified plan account – an $11,552 advantage.
Not having a qualified plan may cost more than having one.
To learn more about qualified plan, click here.
The companies of National Life Group and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with our appropriate professional advisor. Qualified plans are offered and administered independently of the companies of National Life Group.