Entering his 35th year of business and approaching retirement, the owner of a construction engineering firm recently approached our team. This owner was running a successful business but was facing significant tax burdens and wanted to explore options allowing him to minimize taxes. In this case study, we’ll explain how we used a Cash Balance Plan to enable this owner to save on taxes while meeting the needs of his existing workforce.
The Challenge
When this construction engineering firm’s owner approached us, he had been managing his finances with the help of multiple advisors. This client chose to work with us because he saw us as a proactive partner, acting as his personal COO and CFO. It became clear that previous work resulted in a lack of coordination around the tax strategy. It was important for the Twelve Points team to come in and help coordinate previously siloed financial strategies into one cohesive plan, working as a team.
At the same time, the firm’s employee base was young, which meant the owner needed to maintain a competitive employee benefits package while meeting his retirement goals. This added a layer of complexity to designing a tax strategy. Any changes made to existing plans had to account for employee retention.
Our Approach
We took a comprehensive approach to help this owner address the needlessly heavy tax burdens. We started by reviewing the company’s tax returns and retirement plan documents, flagging areas where we noticed the firm was missing tax-saving opportunities.
From here, we worked with the business owner and his new accounting firm to better understand the business and its goals. Through this collaboration, we developed a holistic solution to the business’s tax challenges and the retirement needs of the owner and his employees.
Our strategy was to layer a Cash Balance Plan over the existing 401(k) plan. This recommendation allowed the owner to contribute up to $300,000 annually in tax-deferred savings. A unique aspect of the plan was the benefit structure. Of the money the owner contributed, the plan would allocate 90% to him, and the remaining 10% would go to employees. In this way, the owner could focus on building his retirement savings while offering his employees an additional benefit.
The Results
Implementing the Cash Balance Plan resulted in immediate tax savings for the business. The owner could defer a significant portion of his income to the plan each year — much more than what would typically be allowed with a standard 401(k) plan. Through this large contribution, he could set aside funds for his retirement while reducing his taxable income for the current year.
The 10% allocation also offered an attractive incentive to a young employee workforce. Since the Cash Balance Plan was layered over the existing 401(k) plan, it improved the retirement benefits package, resulting in higher employee satisfaction and retention.
The Twelve Points Difference
At Twelve Points, we aim to become a trusted advisor for our clients. We act as an extension of their team, providing holistic, integrated financial solutions. Our ability to work with tax and legal advisors to integrate tax and retirement planning solutions sets us apart from traditional advisors who take a siloed approach to planning.
If your business is interested in doing the same, contact us for a consultation. We will work with you to build a custom results-driven strategy for your business’s needs.
