Significant tax deductions

Tax deductions are increasingly hard to come by, especially above the line deductions that directly reduce ordinary income dollar for dollar. With the tax rate increases of 2013, Cash Balance Plans make a bigger impact on savings than ever before.

4 Key Taxes & How a Cash Balance Plan Helps

  1. Investment Tax – An additional 3.8% tax on unearned net income is now levied on individuals making more than $200,000 or $250,000 for married couples. The investment tax is in addition to the capital gains and dividend tax increase from 15% - 20%
  2. Top Marginal Bracket – The top marginal bracket has increased to 39.6% for individuals earning more than $413,200 or $464,850 for married couples.
  3. Medicare Tax – There 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 – The ability to itemize certain tax deductions has been phased out for individuals making more than $250,000 (or $300,000 for married couples).

  Investment Tax

  3.8%

  Top Marginal Income Tax

  39.6%

  Medicare Tax

  3.8%

  Capital Gains Tax

  23.8%

  Dividend Tax

  23.8%

Example of Tax Savings:

Managing Partner of a Law Firm

Age 55, married filing 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

*Taxes are deferred only. This information is general in nature and is not a substitute for tax advice.

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