The 401(h) plan works much
like a regular 401(k) plan because the money you deposit into this account is
100% tax-deductible. However, the
difference lies in the fact when you withdraw these funds to pay for medical
costs there are no taxes due! This even
includes elective surgery.
Here’s an example. Instead of funding let’s assume $10,000 into
a regular 401(k), you allocate $1,000 in the 401(H) option. You still deduct the $1,000. At 5% over 15 years this money would grow to
$18,646. Then when the retired employee
has let’s say $10,000 in medical costs in a given year, he can withdraw the
$10,000 tax-free!
I highly recommend looking
into this option. We can coordinate such
plans with your accountant and third party administrator. Stay tuned for other tax savings ideas for
business owners.