You may be considering setting up a cash balance plan for a variety of reasons. This could include tax savings, maximizing retirement, or providing an excellent employee benefit. But one important question remains: what is the deadline for establishing a cash balance plan?
These plans have become very popular for variety of reasons. One of the reasons is that in order to take a tax deduction for the prior year you have up to the date you file your taxes (including any extension periods).
Accordingly, for a given calendar year S corporation return you have until March 15th to file and fund the plan and you can delay it up to September 15 (an additional six months). The plan must be funded though before you file your tax return.
Deadline for Establishing a Cash Balance Plan
Thanks to the SECURE Act, you now have the ability to establish a plan up to the date you file your taxes. For an S-Corporation, a cash balance plan must be established by September 15th to be effective for the prior year. If an extension is filed then you can open and fund a plan up to September 15th. This is a critical deadline to remember.
If you have a solo cash balance plan, then you have some time. But because of the deadline, you need to start running cash balance plan illustrations as soon as possible.
You may have to run multiple scenarios and various illustrations in order to find a plan that works for you. It is for this reason that we would typically say that you need to start working on a plan by mid-November in order to have plenty of time especially considering the holiday season.
With March 15th being the important deadline, make sure that you communicate your plan intentions well enough in advance. You can never plan too early.
Set Up Process
But don’t wait till the deadline to set up your plan. Remember that not only does it need to be set up, but it needs to be funded before you file your tax return with the latest date being September 15th.
In most cases it’ll take one to two weeks to actually set up a plan. From there, you’ll need to get the investment account set up which could take another couple weeks. Finally, you have to fund the plan, notify your CPA and then submit your tax return to the IRS. So needless to say, the entire process can take at least a month.
If you’re looking to get a plan started before March 15th, you want to get the plan in place the process started in early February. If you are extending your tax return, then start the set-up process in August. Just make sure you have plenty of time.
Every year we have a few clients that come to us the first couple weeks of September and we have to tell them it’s just too late to set the plan up. So, the timing is of course critical.
Final Thoughts
In conclusion, the cash balance plan setup deadline stands as a pivotal milestone for employers seeking to establish these retirement vehicles. Beyond mere compliance with regulatory timelines, timely establishment allows companies to optimize tax advantages, leverage investment opportunities, and strategically align their retirement offerings with long-term organizational goals.
As the landscape of retirement planning continues to evolve, the importance of adhering to cash balance plan setup deadlines cannot be overstated. Actuaries, financial advisors, and HR professionals play crucial roles in guiding employers through the complexities of plan establishment, ensuring that timelines are met and processes are executed with precision.
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