Deadline to Establish a Cash Balance Plan: The Critical Date

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.

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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 March 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.

Paul Sundin

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