Employers who offer retirement contributions are seen as more reputable and often have a better relationship with their employees. For rewarding their employees, businesses can get tax deductions from the government. But just like with most things related to the IRS, there’s some red tape surrounding contributions and deductibles.
These things can get tricky, but we’re here to help. This post will cover DB/DC combo plans and answer common questions, like what the max contribution limits for combo plans are.
What is a DB/DC combo plan?
Let’s start with the basics. A DB/DC combo plan is just what it sounds like—it’s a mix of a defined benefit (DB) plan with a defined contribution (DC) plan. By combining the two plans, a business owner can increase their deductible limits while reducing the costs of providing retirement benefits to employees. A DB/DC can be a great choice for a smaller business.
By adding an DC plan to an existing DB, an owner can increase benefits by thousands of dollars per year while still cutting their costs in half. A DB/DC combo can be a win-win situation for everyone involved.
What are the max contribution limits for combo plans?
A DB/DC might sound a little too good to be true, right? Well. depending on the circumstance, there could be contribution limits for these combo plans. If the DB plan is covered by the Pension Benefit Guaranty Corporation (PBGC), there’s no contribution limit besides whatever the plan’s actuary says it is.
Suppose the DB plan is not covered by PBGC. In that case, the maximum deductible contribution is either 25 percent of the aggregate compensation of all DB/DC participants or the amount necessary to meet the minimum funding standard for the DB.
It’s best to speak to your financial advisor to ensure that you’re maximizing your contributions without breaking any federal rules that could land you in hot water.
How can I maximize my DB/DC contributions?
The best way to maximize any retirement contribution is to, again, talk to your financial planner. Your advisor will start by looking over your offered plans to see which one is right for your business and employees. In some cases, a DB/DC isn’t the right way to go. Maybe you should consider a cash balance plan that can allow for larger contributions without breaking any laws.
With a reputable financial planner on your side, you’ll be able to maximize contributions and your deductions to ensure your employees are happy and you’re saving your business as much money as possible.
Talk to our team about the plan that’s right for you
Regardless of your business’ size, work with our team at Fiduciary Advisors, Ltd to secure everyone’s financial future. From DCs to DBs and DB/DC combos, we offer a wide variety of retirement plan options to meet your needs. Call us today or request a proposal online to learn more about how to maximize DB/DC contributions.