Case Study Business Tax Services

Protecting Profits through Retirement Plans

Two shareholders of a prosperous S Corporation wanted to establish a retirement plan to reduce taxes now and provide retirement income in the future. They were interested in starting a retirement plan for employees, too, but wanted to allocate most of the contribution for themselves.

We took a census so we knew the range of ages and salaries among the employees. We discovered that the two shareholders were the company's oldest employees, so we recommended establishing an age-based discretionary profit-sharing plan that allows an employer to contribute a larger share of profits to older employees. As a discretionary plan, the company has the flexibility to decide each year how much it can afford to contribute.

For the employees, we recommended starting a 401(K) plan to provide a salary-based retirement benefit. Workers can make voluntary, tax-deductible contributions to the plan up to certain limits. In this case, the employer matched part of their workers' contributions.

Because the two shareholders took our advice, employees were delighted to have a retirement savings vehicle that also reduced their taxable income, and the shareholders got what they wanted: a significant reduction in taxable income and two different retirement savings plans for their employees and themselves.

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