Save more for retirement, with contributions that may reduce your current-year taxable income.

A Defined Benefit plan is a qualified retirement plan that promises a specific benefit at retirement. Annual contributions are calculated by an actuary based on the target benefit and each participant's age, compensation, and years to retirement. Defined Benefit plans can allow significantly larger annual contributions than 401(k) plans, particularly for older high-income participants. Contributions are generally deductible to the business within IRS limits and grow tax-deferred until distribution, when they are taxed as ordinary income.

A Cash Balance plan is a type of Defined Benefit plan that expresses each participant's benefit as a hypothetical account balance, so it looks more like a 401(k) while keeping Defined Benefit contribution limits. The balance grows each year by a contribution credit and an interest credit defined by the plan. Many small business owners find it easier to understand than a traditional pension formula, though it carries the same annual funding obligations.

A combined structure pairs a Defined Benefit or Cash Balance plan with a 401(k), usually with a profit-sharing component. Each plan has its own contribution limits, and combined deduction limits apply, so the actuary designs the layers together. For many high-income owners, this produces the highest total contribution capacity, often several times what a 401(k) alone allows.

It depends on your age, compensation, plan design, actuarial assumptions, and IRS limits in effect. As a hypothetical example, a 55-year-old owner with high compensation and no employees might be able to contribute roughly $200,000 to $400,000 per year across a combined plan, depending on the structure. Older owners may be able to contribute more. The proposal estimates a range for your situation; the actuary determines the final figures.

If you have eligible employees, the plan must satisfy IRS nondiscrimination testing, which generally requires contributions on their behalf. Plan design can direct a larger share of contributions to the owner when the owner's compensation is substantially higher than employees', but employee contributions generally cannot be avoided if testing requires them. Solo practitioners with no employees (or only a spouse on payroll) generally don't face this issue. Every proposal estimates employee cost so you see the full picture before deciding.

From a signed engagement to a funded plan, timelines often run six to ten weeks. The preliminary proposal usually takes one to two weeks once we have your information, and formal plan design with the actuary takes another two to four weeks. Under current rules, a plan generally may be adopted as late as the business's tax filing deadline, including extensions, and still be treated as in place for that tax year. Confirm the deadline that applies to you with your CPA.

Annual costs typically include third-party actuarial and administration fees, recordkeeping fees, and our advisory fee on plan assets. Costs vary with plan complexity and the number of participants. Plan expenses paid by the business are generally deductible. The proposal includes a cost estimate so you can weigh the full economics before deciding.

Yes, with planning. The IRS expects Defined Benefit and Cash Balance plans to be permanent, and terminating within the first few years without a legitimate business reason can raise qualification issues. Plans can be amended to reduce future contributions if your income changes, subject to notice and funding rules, and they are typically terminated at retirement or a sale of the business. We discuss the expected time horizon and exit planning before you commit.

Index Gurus is a fee-only adviser. We accept no commissions, referral fees, or product-placement payments. Our fees for retirement plan engagements include a plan-setup fee and an ongoing advisory fee on plan assets, provided in writing before you engage and described in Form ADV Part 2A. Third-party actuarial, recordkeeping, and custody fees are separate and paid to those providers. Other economic benefits, such as services made available through our custodian, are also described in Form ADV Part 2A.

Yes. Plan design affects the business's tax return, your personal return, and estimated tax payments, so we coordinate with your CPA throughout the proposal, setup, and ongoing phases. If you don't have a CPA familiar with these plans, we can suggest professionals for you to consider. We do not receive compensation for referrals. Index Gurus does not provide tax or legal advice.