Revisiting a retirement plan the business had outgrown

A growing tax bill and an unchanged retirement contribution

A second-generation manufacturer had grown substantially since its retirement plan was designed. The business employed approximately 40 people across two shifts. Its owner, in his late fifties, was reaching his annual employee-deferral limit while facing a six-figure tax liability.

According to Tom Pearson, the owner initially assumed he was missing a straightforward deduction. He had already spoken with other advisors and was wary of another product proposal. He also valued his relationship with his CPA and did not want a recommendation that began by replacing that professional.

The review uncovered several issues beyond the annual contribution amount. The submission describes a lack of documented plan reviews and an investment policy statement. It also identifies a buy-sell agreement with an eleven-year-old valuation method and no funding behind it.

Start with the employees and the existing plan

Tom describes reviewing a cash-balance plan alongside the existing 401(k) and profit-sharing arrangements. Before recommending a design, a third-party administrator used the actual employee census to model how the arrangement could work.

That step mattered because the owner was not the only person affected. The analysis needed to account for eligible employees and the contributions the business would make for them. The CPA reviewed the proposed deduction treatment. The outdated buy-sell agreement was referred to the owner's attorney.

The advisor also describes modeling a hypothetical decline in revenue. A larger retirement-funding commitment had to be considered alongside the company's ability to keep funding it during a weaker year.

What the analysis showed—and what it did not

The submission describes potential deductible contributions in the low-to-mid six figures, subject to plan design and the owner's circumstances. It does not provide a final funded amount or a confirmed tax-saving figure.

Tom reports that he discussed employee contributions and ongoing funding obligations before the owner committed. He also explained the distinction between deferring tax through a retirement arrangement and permanently eliminating tax.

Why the conversation gained traction

According to the advisor, the owner responded to seeing a recommendation developed from his employee data. The discussion also included the costs and obligations, rather than stopping at the largest possible deduction.

For another owner, the practical starting point is a review of the current plan, compensation, employee census and business cash flow. An arrangement designed when the company was smaller may deserve another look, but a larger potential contribution is only one part of the decision.