As a business owner, I'm now contemplating the contributions that I make for myself and employees and wondering if it is worth it. We have a 401K/profit sharing plan with Safe Harbor provision. I deferred 31K of compensation into the 401K, and will put in 7.4K safe harbor match for myself and spouse. That will cost me 1.9K, because I have to put in the safe harbor match to the employees. Now, to get the full 46K (profit sharing contributions), ie 23.6K more, it will cost me 6.5K more because of the required profit sharing contributions to employees. The whole idea of this is that when I take distributions during retirement, the tax rate will be lower that it is now, and that will offset the costs associated with me putting the money away. Do you believe this assumption? For a high net worth individual retiring, will the tax rates really be lower in 20-30 years, particularly with the rising national debt and obligations for entitlement programs to the retiring baby boomers? I just pose the question and wonder if maybe I should consider some parts of retirement outside of tax deferred vehicles. It goes against "traditional wisdom" that I have heard so often so I need a reality check. Any thoughts?

Zip Code: 01776

Jason-

In addition to tax reasons, there are many good reasons to have a retirement plan for the benefit of you and your employees.

However, I agree with you. If we are deferring today only to take money out, in the future, at a higher rate, what have we accomplished? We have actually done reverse tax planning.

There are alternatives such as the Roth 401(k) to consider.

In fact, depending upon the business owner's age, it might not make any sense to contribute at all.

Zip Code: 11797