Why Business Owners Need a Strategic Retirement Plan
As a small business owner, your retirement plan is not just about saving for the future — it is one of the most powerful tax deduction tools available to you. The right plan structure can allow you to shelter significantly more income than a standard 401(k) alone.
Johnny Hong works with business owners across Orange County to design retirement plans that maximize tax deductions while building substantial retirement wealth. Here is an overview of the options available.
Plan Options at a Glance
412(e)(3) Defined Benefit Plans
This is the heavyweight champion of tax deductions. A 412(e)(3) plan is designed to allow the largest possible contributions — and therefore the largest deductions. Benefits are guaranteed by the insurance company, not dependent on market performance.
For a business owner age 55, first-year deductions can potentially exceed $200,000. The plan does not require an enrolled actuary and eliminates the risk of excess plan assets.
Cash Balance Pension Plans
A cash balance plan is a hybrid that combines features of defined benefit and defined contribution plans. It allows much higher contribution limits than a 401(k) alone, and contributions can be structured to heavily favor the business owner.
For example, a 55-year-old owner earning $225,000 could potentially contribute over $150,000 — representing the vast majority of total plan contributions.
New Comparability Profit Sharing
This plan type allows the largest share of company contributions to go to the owner and key employees. Contribution levels are flexible and discretionary each year, making it ideal for businesses with variable income.
Safe Harbor 401(k)
A Safe Harbor 401(k) provides a 3% fully vested employer contribution for all employees while allowing key employees to contribute the maximum deferral amount without discrimination testing concerns.
Combining Plans for Maximum Benefit
The real power comes from pairing plans together. A Cash Balance Plan combined with a Safe Harbor 401(k) can allow total annual deductions well in excess of standard 401(k) limits — all while building guaranteed retirement income.
Next Steps
The right retirement plan depends on your business size, income, employee count, and age. Johnny offers free consultations to help you determine which plan structure could provide the most tax savings for your specific situation.
This article is for informational purposes only and does not constitute tax or financial advice. Consult with a qualified tax professional regarding your individual situation.
Johnny Hong has helped hundreds of Orange County families retire with confidence. A focused 30-minute conversation can help you see your next best move clearly.