Thanks to SECURE 2.0, employers can now get a slice of tax-saving action for the previous year by setting up a retroactive retirement plan. This is one gouda provision that deserves a spotlight!
The Big Cheese of the SECURE Act
One of the most impactful provisions of the SECURE Act is the ability for businesses to retroactively adopt a new profit sharing, defined benefit, or cash balance plan after the close of the plan year, up until their tax return due date, including extensions.
If employers are looking for more cheddar in tax savings for last year, there are now three grate plans to consider, regardless of business entity type.
Plan Types to Brie-ware of
Defined Benefit Plan – Think of this as the fancy aged-cheddar of retirement plans. With a defined benefit plan, employees are promised a specific benefit amount upon retirement.
Profit Sharing Plan – A little more versatile and creamy, a profit sharing plan allows employers to decide how much they want to contribute to employees’ retirement accounts based on the company’s profits.
SECURE 2.0 expanded this retroactive option to owner only 401(k) plans—allowing retroactive deferrals in addition to a profit sharing allocation—but only for sole proprietors or single-member LLCs (this is not available for partnerships, S-Corps or C-Corps).
Cash Balance Plan – This one’s a hybrid, like a bleu cheese—it’s unique but packed with benefits! Cash balance plans combine features of both defined benefit and defined contribution plans, potentially giving employers and employees the best of both worlds, if it’s a good fit.
Retroactive retirement plans: Giving employers what they swiss for
Employers now have until the due date of their business’s tax return, including extensions, to establish one of these plans. This means more time to evaluate the business’s performance and decide on the best plan. It’s wonderful; employers can review their actual tax situation and improve it by adding a plan today!
So, run as fast as your legs curd carry you and spread this news! Retroactive plans ARE all they’re cracked up to brie, by allowing flexibility and tax savings to employers.
Interested and want more info? Get our overview with all the details and deadline information by filling out the form below.
