ZUNA Professional Services Case Study
How Zuna’s look under the hood of one company led to a significantly reduced tax liability and an additional $100,000 estimated in retirement savings for the three partners.
Save more and lower taxes with Cash Balance
How do we create holistic retirement benefits that are fair, equitable and optimized for our whole organization so that everyone can put their savings to work? That’s the question posed by our new client, a boutique criminal defense law firm. But after taking a look under the hood, we not only improved their 401(k) plan for their 15 employees, but exposed missed opportunities for the three partners to save money and reduce tax liabilities.
One of the challenges professional service firms face in structuring their retirement benefit programs include limitations placed on how much the firm partners can save themselves. Additionally, many of these firms are structured as pass through entities placing a higher tax burden on the more senior and highly compensated partners.
Our client had maintained a generous 401(k) Safe Harbor profit sharing plan and had been contributing to employees’ retirement benefits for many years. While the partners were contributing up to the allowable IRS limits ($58,000 in 2021), they had the ability to save more. A Cash Balance Plan was an ideal solution.
A Cash Balance Plan allows the partners save more for retirement and have the benefit of a tax planning strategy. Staff profit sharing contributions were already at a level that would help meet the minimum contributions required, and the partners could afford to make additional contributions to cash balance for at least five years.With the benefit of the SECURE Act and some good timing, Zuna was able to establish the Cash Balance Plan retroactively for 2020, as contributions were made before filing 2020 taxes.
Our team assisted the firm with retaining a plan administrator and actuary who specializes in Cash Balance Plans and oversaw the establishment of the plan.We offered several projection scenarios before the firm settled on a contribution strategy that allowed them to allocate 90% of the total cash balance contribution to firm partners (without reducing the already generous Safe Harbor and profit sharing to firm employees). By implementing the Cash Balance strategy, firm partners were able to save an additional $27,500 each (per year) towards retirement and the projected tax benefit to the firm is over $150,000 annually.
Contact Zuna for a complementary consultation on whether a Cash Balance plan is a good fit for your firm.
