BC Journal

Pension Plans

Pension Plans: How Aging Owners Can Maximize Savings and Minimize Taxes

It seems logical to conclude our business retirement plan series with guaranteed pension plans. These plans are unique because benefits are guaranteed and there are no annual contribution limits. Both features accommodate significant tax-deferred retirement savings for the right companies.


There are many different types of retirement plans. Each serves a specific set of goals and circumstances. This month’s article focuses on pension plans – a rare but worthy option for select businesses.

Certain pension plans promise a guaranteed income stream in retirement. These plans are funded entirely by the employer. Annual contributions are mandatory and driven by return assumptions, life expectancies, and turnover expectations. Contribution formulas typically favor longtime owners approaching retirement. The reasoning for this is fairly simple: aging owners have longer tenures and shorter retirement deadlines.

Previous articles tracked the evolution of retirement plans. Readers learned that there are now leaner, less expensive, and more flexible alternatives to guaranteed pension plans. Still, guaranteed pension plans can be attractive due to their unique contribution rules. Pension plans accommodate substantial annual contributions, allowing aging owners to reduce their tax bills and jumpstart retirement savings goals.

#Finterms: Tax-Loss Harvesting

Tax-loss harvesting is a strategy employed by investors to minimize capital gains taxes by selling losing investments to offset gains. This practice involves intentionally selling investments that have experienced a loss in order to offset the capital gains realized from other investments. By doing so, investors can reduce their overall taxable income and, consequently, lower their tax liability.

Here's a basic overview of how tax-loss harvesting works:

  1. Identify Losses: Investors review their investment portfolio to identify assets that have declined in value since their purchase.
  2. Sell Losing Investments: The investor sells the underperforming investments to realize the losses.
  3. Offset Gains: The capital losses generated from the sale are then used to offset any capital gains the investor may have realized from other investments. If the losses exceed the gains, they can be used to offset up to $3,000 of other income. Any remaining losses can be carried forward to offset gains in future years.
  4. Maintain Portfolio Exposure: After selling the losing investments, investors may replace them with similar, but not identical, investments to maintain their desired asset allocation and market exposure. This step is crucial to avoid violating the IRS's "wash-sale" rule, which disallows the recognition of a loss if a "substantially identical" security is purchased within 30 days before or after the sale.

It's important to note that tax rules and regulations can be complex, and individuals should consult with tax professionals or financial advisors to ensure that tax-loss harvesting aligns with their overall financial goals and strategies. Additionally, tax laws may vary between jurisdictions, so it's essential to be aware of the specific rules applicable to your situation.

#tax #taxlossharvesting #investments #taxplanning

Financial Literacy

November Is Off to a Good Start

For the third straight month, major U.S. equity indices suffered losses. The Dow, S&P 500 and NASDAQ were down 1.14%, 2.2% and 2.8% respectively in October. The volatility reflected the conflict in the Middle East, mixed economic data, corporate earnings reports and higher for longer interest rate expectations. The S&P 500 breached the -10% correction guideline during the month. Our “Third Quarter Disappointment: What’s Next” piece foresaw this downturn.

Corporate earnings reports were generally positive, but corporate guidance for the next few quarters was generally cautionary, if not negative. Third quarter GDP growth rate was up a remarkable 4.9% lending support to “higher for longer” expectations. Counterbalancing the positive news was increasing inflation growth (3.7%), rising unemployment (3.9%) and a slowdown in new hiring.

#Finterms: Massachusetts Millionaire’s Tax

The Massachusetts millionaire’s tax is a 4% surtax on taxable income over $1,000,000. The tax became effective in 2023 and made Massachusetts one of the highest taxed states in the nation. Connecticut, Maine, New Jersey, New York, and Washington D.C. all have similar surtaxes.

The following comparison shows the impact for a single earner with $2,000,000 in taxable income. Under this example, the Massachusetts millionaire’s tax assesses $40,000 in additional state income taxes.

The Massachusetts millionaire’s tax creates important planning considerations for high earners. Certain gifting, shifting, and trust techniques may lower tax costs. Outright relocation can provide similar benefits. For decades, BaldwinClarke has helped individuals, families, and businesses understand their tax liabilities and evaluate appropriate strategies.

#tax #incometax #surtax #taxplanning #massachusetts #millionairestax

Financial Literacy