The Power of Cross-Testing
One of the biggest fears business owners have when setting up a high-performance retirement plan is the 'non-discrimination' rule. They assume that if they want to put 25% of their salary into a plan, they have to put 25% into every single employee's plan.
If you have 15 employees, the math simply doesn't work. It would wipe out all your tax savings. This is the 'Equal Percentage' Trap.
At SafeSimpleSound, we utilize a sophisticated IRS-approved method called Cross-Testing (or New Comparability).
Rather than testing the plan based purely on the dollars going in today, the IRS allows us to test based on the projected benefit at retirement age (typically age 65). This shift in perspective changes everything.
Because a 55-year-old owner has only 10 years for their money to grow, and a 25-year-old employee has 40 years, the math of 'fairness' looks very different. A small contribution today for the 25-year-old will grow into a massive benefit by age 65.
By testing on the future value rather than the current dollar, we can mathematically justify much larger contributions for the owner while providing a 'Safe' and meaningful (but much lower cost) contribution for the staff.
This isn't about being unfair; it's about being mathematically precise. It allows you to protect your own wealth acceleration while satisfying all IRS rules. You move from a 'percentage' mindset to a 'benefit' mindset, which is the key to unlocking true tax-deductible power.
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DISCLAIMER: This content is for educational purposes only and should not be considered personalized financial advice. Always consult with a qualified financial professional before making financial decisions.