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Many business owners are facing high tax bills and are not receiving the necessary tax-planning guidance from their financial advisors. There is a lack of proactive tax-planning advice, especially when it comes to setting up retirement plans like a Cash Balance Pension Plan. In a recent case, a business owner was paying over 50% in taxes on their last dollar earned, despite having significant income and only a small IRA for retirement savings. The business owner missed out on over $2 million in tax deductions over the years due to a lack of proper planning.

Setting up a Cash Balance Plan can be a significant tax-saving strategy for business owners. By combining a Profit-Sharing Plan with a Cash Balance Plan, a business owner can contribute up to $425,000 for their family and potentially save over $2 million in taxes over the next decade. The tax savings could be even higher if contribution limits increase or if tax rates rise after the expiration of the Tax Cuts and Jobs Act in 2025.

Cash Balance Plans are becoming more popular among small business owners as a way to minimize yearly taxes. These plans allow for substantial contributions, with some business owners contributing as much as $3 million in a year. Contributions to a Cash Balance Pension Plan can provide tax deductions, and there may still be time to set up a plan for the current tax year.

Managing a Cash Balance Plan involves some yearly work, such as reviewing employee data and making necessary amendments to the plan. Contributions to the plan must be made before the due date of your tax return, including extensions. While the tax benefits of a Cash Balance Plan can be significant, there are setup and administrative costs that are also tax-deductible business expenses.

It is essential to work closely with a fiduciary financial advisor to determine if a Cash Balance Plan is the right retirement strategy for your business. Not all employees are required to be included in the plan, and adjustments can be made to contributions based on yearly profitability. A lump sum or annuity income can be paid out from the plan, or funds can be rolled over into an IRA when an employee leaves or the plan is terminated.

In conclusion, setting up a Cash Balance Plan can provide substantial tax benefits for business owners, but it requires careful planning and ongoing management. By working with a knowledgeable financial advisor, business owners can maximize their retirement savings and minimize their tax burden. It is crucial to take proactive steps in tax planning to ensure financial freedom and keep more hard-earned money in your pocket.

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