Top 5 Tax Advantages of a Benefit Focused Retirement Plan | Rob.CPA [Video]

In this video, I will walk through how a benefit-focused retirement plan is a good option for businesses that are doing well financially and looking for ways to reduce their tax liability. Companies will be able to double or triple their tax savings vs. using a traditional retirement plan.

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Contributions made to retirement plans are almost always income tax deductible. So if you can increase your retirement plan contributions while at the same time saving on taxes, why not.

If your business is printing money and cash flows is not an issue, this might be something to consider.

There are two types of qualified retirement plans.

Qualified retirement plans are retirement savings accounts that offer tax advantages to individuals and/or employers. There are several types of qualified retirement plans, but two major ones include:

1. **Defined Contribution Plans**: These plans, including the popular 401(k) and 403(b) plans, allow employees to contribute a portion of their pre-tax salary to a retirement account. The amount of the eventual retirement benefits depends on the contributions made and the performance of the investments in the account. Employers may also contribute to these accounts, often through a matching program. Roth 401(k)s are a type of defined contribution plan where contributions are made post-tax, but withdrawals in retirement are tax-free.
2. **Defined Benefit Plans**: Also known as pension plans, these plans guarantee a specific retirement benefit amount to employees based on a formula, usually considering factors such as salary, age, and years of service. The employer is responsible for managing and funding the plan to ensure that there are sufficient funds to pay the promised benefits.

Essentially, the owner purchases life insurance as part of the funding for the plan structure.

The Benefit-Focused Plan is a Defined Benefit Plan. This type of plan offers greater benefits than traditional defined benefit plans. The Benefit-Focused Plan works very well for entrepreneurs growing successful businesses.

Some of the benefits:

1. protected from the claims of creditors
2. you can contribute significantly more to the plan – more than a SEP or Cash Balance Plan
3. may not be subject to Federal estate or State inheritance taxes
4. if the owners die, the benefits can be passed on to their spouse or family members.

Business owners need to keep in mind that you’ll need to review these plans each year. If you plan to sell your company or other changes occur within the company, you’ll need to update the plan.