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Tune-Up Your 401(k) With A Cash Balance Plan

December 13, 2020
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401(k) + CASH BALANCE PLAN OFFERS THE HIGHEST CONTRIBUTIONS AND TAX SAVINGS.

DESIGNED FOR OWNERS OF HIGHLY PROFITABLE SMALL BUSINESSES.

Has our small business or professional practice reached a sustainable level of profitability? Because of contribution limits the IRS has imposed on a 401(k), these plans have limited benefits for successful companies. Increasingly the highly profitable business, with just a few employees are turning to Cash Balance Plans for larger tax deductions and accelerated retirement savings.

WHAT IS A CASH BALANCE PLAN? 

A cash balance plan is generally used by businesses with multiple owners who have stable surplus income and are interested in larger tax deductions and accelerated retirement savings. A cash balance plan is a type of a defined benefit plan that resembles a 401(k) plan; however it allows contributions that typically far exceed the limits of a 401(k) profit-sharing plan.

Unlike a traditional defined benefit plan, which promises a monthly payment in retirement, a cash balance plan provides a participant with a hypothetical account balance. This balance increases annually from two sources: employer contribution and guaranteed investment earnings linked contributions.

Upon retirement or plan termination, the assets may be rolled over into an IRA account where they will continue to grow tax deferred. Cash balance design supports the establishment of multiple participant groups, which allows owners with divergent savings objectives to meet their individual goals.

WHO IS IT FOR?

A cash balance plan may be appropriate for businesses that:

  • Are interested in providing a layer of benefits to supplement a 401(k) plan

  • Want to recognize key players with contributions in excess of 401(k) plan limits

  • Have a consistent profit pattern that meets the minimum funding standards

  • Seek to tailor contribution for specific groups of participants

  • Desire to offer a tiered benefit system to attract and retain talent

  • Optional access to savings through plan loans in case of a need

  • Tailored vesting schedules.

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