A Combo Plan combines a DB Plan and a 401(k) to maximize tax benefits and retirement savings. It's ideal for high-income professionals. Want to explore Combo Plans? Click below.
What is a Combo Plan?
A Combo Plan is a retirement strategy that combines two powerful tools: a Defined Benefit (DB) Plan and a 401(k) Plan. The business owner benefits from the higher contribution limits of the DB Plan, while employees participate in the 401(k) Plan. This setup offers maximum flexibility and tax efficiency for both employers and employees.
Why Choose a Combo Plan?
The DB Plan allows business owners to contribute significantly more than a standard 401(k), leading to greater tax deductions and faster wealth accumulation. A Combo Plan solves the challenge of offering equal benefits to employees while maximizing owner benefits.
- Maximum Tax Deduction
- Flexible Employee Benefits
- Enhanced Employee Retention
Real-Life Combo Plan Example
Let's consider a CPA firm operated by a high-income business owner and spouse:
- Owner (CPA): $180,000 annual income
- Spouse (Administrative Role): $90,000
- Two Employees: $80,000 and $60,000
They can contribute approximately $160,000 into the DB Plan. For the employees, the business contributes 7.5% matching, totaling $10,500. Total deductible contributions exceed $170,500. The owner and spouse can also defer $23,000 ($30,500 if over age 50) into 401(k) plans.
What to Watch Out For
- Regulatory Compliance: IRS rules for DB and 401(k) must be followed
- Higher Administrative Costs: Professional assistance may be required
Who Should Consider a Combo Plan?
- High-income business owners ($150K+)
- Small teams with income disparity
- Owners looking to combine tax savings with employee retention
Conclusion
A Combo Plan offers strategic advantages for high-income business owners. It's a tax-efficient, retirement-optimized solution that also boosts employee satisfaction. Start planning your financial future today.
