In my practice, I cater to businesses. The personal returns I end up doing are for the owners of those businesses. Most businesses pay me to do quarterly tax planning for them along with their write-up. The way I do tax planning is different from most accountants. I was taught to have a client buy a bunch of equipment, whether they needed it or not, and that was tax planning. That never made sense to me, so I adopted the theory of putting as much money in my client’s pocket tax free.
The simplest, and most obvious, way to accomplish that would be with either a solo 401(k) plan, if there are no employees, or a Safe Harbor 401(k), if there are employees. If the company is making a ton of money I would combine a 401(k) with a defined benefit plan (DBP).
A solo 401(k) is for a company with just the owner, or the owner and their spouse. They can put $18,500, if under 50, into the plan through salary deferrals. I usually like to use the Roth option for the deferrals. Then they can match 25 percent of their salary, up to $54,000.
A Safe Harbor 401(k) works the same. However they are designed for companies with employees. The 25 percent match is still valid for the owners, and the employees have to be offered the plan. If they participate, the company has to match their salary by 3 percent.
Then there’s the DBP. Depending on someone’s age, the amount they want to retire on, and other factors, the business owner can conceivably pay themselves $250,000, and then put another $250,000 into the DBP.