Retroactive Profit Sharing Plan = Tax Deduction Time Machine

Your time is money.. it’s not too late for you to keep more of it!

Although the primary goal within the retirement industry is to plan for the future, it can sometimes be beneficial to reach into the past..

Thanks to the SECURE Act of 2019, employers can retroactively implement a 401(k) or 403(b) plan and make profit sharing contributions for the previous year (but not payroll deferrals as participants must make deferral elections before earning amounts).

Before the SECURE Act, employers had to adopt a retirement plan before the end of their tax year in order to obtain the deduction for that year. 

Employers may now consider retroactively adopting a tax-qualified retirement plan such as a profit sharing plan, cash balance plan, or traditional defined benefit plan, for the purpose of making tax deductible employer contributions before their extended corporate tax filing deadline.

In other words, business owners who sponsor a retirement plan and want an additional tax deduction for 2023 can still adopt a plan and get a 2023 deduction. In order to get the deduction, the retroactive plan must be established and employer contributions funded prior to the corporate tax filing deadlines including any applicable extensions.