Tax Hike: What Biden's Tax Plans Means for You

The Biden Administration has started planning for significant tax increases in order to help pay for the
COVID-19 relief bill that passed earlier this year. The Administration’s proposed tax plans have garnered
significant media attention, as the changes are expected to be impactful, particularly for high earning
individuals. 
Some of the most notable proposed tax increases include:

• Increase the federal corporate tax rate to 28% (currently 21%)
• Increase the maximum federal personal tax rate to 39.6% (currently 37%)
• Increase the top federal tax rate on long-term capital gains and qualified dividends to 39.6% (up from current rate of 20%)

Of course these are subject to change as the proposal moves through congressional negotiation.
However, even with significant modification, it’s likely that higher earners will see tax increases under
this Administration. If you are a business owner and this is concerning to you, there are strategies
available to potentially soften adverse tax impacts.

A qualified retirement program is one of the most impactful tools a business owner has when it comes
to tax mitigation. This is because contributions made to the retirement plan reduce taxable income
today, and grow tax-deferred. At Fisher Investments, we specialize in helping business owners
understand how their retirement programs can help address tax savings goals. One strategy that often
appeals to high earning business owners who are concerned about taxes is our 3-layer cake strategy:
Visual:

Step 1: Maximize the owner’s personal contributions to the 401(k) Plan

•  $19,500 or $26,000 for age 50+
• Often times a Safe Harbor provision is needed in order to accomplish this

Step 2: Maximize the owner’s portion of the employer contribution to the 401(k) Plan

•  Up to an additional $38,500/year
• This is often done through implementing a New Comparability Profit Sharing component

Step 3: Turbo charge the owner’s tax-deferred contribution by adding a Cash Balance Plan

• Up to an additional $343,000/year¹
• This is made possible by adding a Cash Balance Plan to the retirement program²

In some cases, this approach can reduce a business owner’s tax bill by over $100k per year by deferring
taxable income into the retirement account. Depending on the business entity, this tax reduction can
apply to both the owner and the business³.

If you are a business owner concerned about tax rate increases, or are interested in learning how to
optimize your retirement program for tax savings, schedule a free consultation to learn more.

¹ Cash Balance contributions limits are based on age
² Cash Balance Plans come with some risks. They are complex, and can be inflexible and expensive. Consult with a professional to determine if a Cash Balance Plan makes sense for your business.
³ The 3-layer cake strategy isn’t a good fit for every business. Consult with a professional to determine if
all, or some parts of this strategy are a good fit for your business.