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Tax time is the perfect time to talk about plan optimization!

As you work with your CPAs to determine better ways to minimize your company's tax liability, it might be a good time to remind you that we drafted your PPA plan document with built-in contribution optimization formulas.

These formulas are known as cross-tested allocation formulas and they allow owners of companies to receive a significantly higher plan contribution while investing a valuable, but smaller, contribution percentage to the rank and file. 

The math behind the cross-tested formula works best when the owners of the company are a bit older than the staff(Not an uncommon occurrence in the business world). While somewhat complex, the basis of the formula works something like this:

Owner 1 (age 55) = 10%

Highly Compensated  Employee (age 50)= 7% Valued Supervisor (age 45) = 5% Staff (average age 30) = 3.4%  (1/3 of the Owner's)

Many times the cross-tested formula is used in conjunction with a Safe Harbor Non-Elective formula  to take full advantage of a safe harbor plan design while maximizing the owner's portion of the Profit Sharing contribution.

The options are endless!  So while you consult with your CPA to minimize your taxes, let's talk about optimizing and maximizing your retirement plan.  It's not too late!  The due date to make 2016 plan contributions is the due date of your company's tax return (including extensions). 

 

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