Cash balance plans can potentially reduce tax liability for both employers and employees. These plans are a type of defined benefit retirement plan where the employer contributes a percentage of an employee's salary each year and guarantees a specific payout upon retirement.
From an employer's perspective, contributions to a cash balance plan are tax-deductible. This means the employer can deduct the contributions made to the plan as a business expense, reducing their taxable income. This can lead to a reduction in the employer's tax liability.
For employees, contributions made by the employer to the cash balance plan on their behalf are not included in their taxable income for that year. However, when the employee eventually receives distributions from the plan upon retirement, those distributions are taxed as ordinary income.
Overall, cash balance plans can provide tax advantages for both employers and employees, allowing for tax-deferred growth of retirement savings and potential reductions in current tax liabilities.
Click this link to view 2023 Cash Balance and 401k Profit Sharing Contributions Limits & Tax Savings
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