Usually the increases in retirement plan contribution limits are not very interesting or news worthy. With the new tax law changes, however, you need to pay special attention to them for tax planning in your small business. For more information on the New Tax Law, read this article.
Because of the new 20% deduction for pass through entities, there are great reasons to consider retirement plans as a TAX PLANNING tool. Limits on the new deduction require income to be below certain thresholds. A retirement plan contribution allows businesses to get below that threshold and take the 20% deduction they would otherwise miss.
An often overlooked option is the defined benefit plan. This is the old style pension plans used prior to the invention of the 401k. For more information on defined benefit plans, read this article.
Changes for the 2018 year limits are minor. Here is a summary:
- Salary Deferral (401k) $18,500
- Total Contribution $55,000
- Defined Benefit Contribution $220,000
- SIMPLE Contribution- No Change
- Catch Up Contribution- No Change
Don’t wait to consider these tax planning options. Most have deadlines for establishing the plans for this tax year. For more information on tax savings for your small business, download the Retirement Plan Comparison below.