3 Qualified Retirement Plan Ideas for Business Owners

The New Year is just around the corner. This is the time of year when business owners have a better sense of how the year is going to end and what their tax bills will be. Here are three qualified retirement plan ideas to explore before the end of 2023.

1. Make voluntary after-tax employee contributions to a Solo 401(k) Plan

Who it applies to:
Business owners who sponsor a solo 401(k) Plan.

What it allows them to do:
Reach the $66,000/$73,500 Defined Contribution Annual Additions Limit even if they are limited on a pre-tax basis by the 25% of compensation profit sharing contribution limit.

What’s really cool about it:
It gives owners the ability to create a bucket of Roth dollars in their Solo 401(k) Plan. You could call it the “MEGA back-door Roth” idea for 401(k) Plans.

2. Use a SEP together with a Safe Harbor 401(k) Plan

Who it applies to:
Business owners who recently hired employees.

What it allows them to do:
The Safe Harbor 401(k) Plan allows owners to defer $22,500/$30,000 into the plan. They also receive either the 3% non-elective contribution or the 4% matching contribution. The owners then reach the $66,000/$73,500 Defined Contribution Annual Additions Limit by making the profit sharing contributions in the SEP rather than in the 401(k) Plan.

What’s really cool about it:
It provides more flexibility to the business owner when determining profit sharing contribution amounts for their employees.

3. Add a Cash Balance Plan to an existing 401(k) Profit Sharing Plan

Who it applies to:
Business owners who want to increase their tax deductions and accelerate their retirement savings.

What it allows them to do:
Adding a Cash Balance Plan allows the business owner to dramatically increase their retirement plan contributions and deductions.

What’s really cool about it:
Depending on the business owners’ ages, the owners can contribute $100,000, $150,000, $200,000 or more for themselves in addition to the contributions they make to the 401(k) Plan.