Tax Advantages of Cash Balance Retirement Plans

Tax deductions are increasingly hard to come by, especially “above the line” deductions that directly reduce ordinary income dollar for dollar. With many federal, state and local tax increases in place for 2013, Cash Balance Plans make a bigger impact on savings than ever before. Tax Advantages of Cash Balance Retirement Plans REDUCING THE PAIN OF RECENT TAX HIKES Federal Tax Increases As of January 1, 2013 Tax Type 2012 Rates 2013 Rates Investment tax 0% 3.8% Top marginal income tax 35% 39.6% Medicare tax 2.9% 3.8% Capital gains tax 15% 23.8% Dividend tax 15% 23.8% Examples of Tax Savings: Business Owner Age 55, married f_i ling jointly, two children • $400,000 adjusted gross income ($350,000 wages, $50,000 investment income)

• No Cash Balance contribution: will pay $103,000 in federal taxes • $150,000 Cash Balance contribution: will pay $51,000 in federal taxes Federal Tax Savings: * $52,000 Medical Group Partner Age 60, married f_i ling jointly, no children • $600,000 adjusted gross income ($550,000 wages, $50,000 investment income) • No Cash Balance contribution: will pay $180,500 in federal taxes • $200,000 Cash Balance contribution: will pay $103,400 in federal taxes Federal Tax Savings: * $77,10 0 Learn more about how a Cash Balance Plan can help reduce taxes and accelerate retirement. Four Key 2013 Tax Changes: How Does a Cash Balance Plan Help? Cash Balance contributions reduce both taxable income and adjusted gross income (AGI), so high income earners may move into a lower tax bracket. All of the following taxes may be reduced or eliminated by contributing to a Cash Balance Plan: 1. Investment Tax An additional 3.8% tax on unearned net income is now imposed on individuals making more than $200,000 (or $250,000 for married couples). T_h e new surtax is in addition to the capital gains and dividend tax increase from 15% to 20%. 2. Top Marginal Income T_h e top marginal tax rate has increased to 39.6% for individuals earning more than $400,000 (or $450,000 for married couples). 3. Medicare Tax T_h ere is an additional 0.9% Medicare payroll tax on income above $200,000 for individuals (or $250,000 for married couples). 4. Phase-Out of Tax Deductions T_h e ability to itemize certain tax deductions has been phased out for individuals making more than $250,000 (or $300,000 for married couples). Call (877) CB-Plans *Taxes are deferred only. This information is general in nature and is not a substitute for tax advice in a particular case. © 2013 Kravitz. All rights reserved....

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