For some companies, a Cash Balance Plan combined with a 401(k) can provide a powerful vehicle to accelerate retirement savings while producing significant tax savings on current income.
In our experience, a Cash Balance Plan can be a great fit for professional firms like doctors, lawyers, and others who have the ability and desire to save more than is allowed under traditional plan arrangements and who have the steady income to comfortably make required contributions each year to this type of plan.
At JULY, we’re experts in retirement plan design and happy to help advisors on behalf of plan sponsors with customized plan illustrations and plan proposals to help in selecting a plan that’s a great fit.
Cash Balance Plans are a great design for employers seeking to fund much larger contributions than permitted under a 401k and Profit Sharing Plan. This plan design is a type of Defined Benefit Plan, but offers some of the best features of Defined Benefit Plans and Defined Contribution Plans. They can also be paired with a 401k plan to provide greater flexibility and savings potential.
In a Cash Balance plan, participants have a hypothetical “account” that is credited with a pay credit (i.e., 5% of pay)
Any business can establish a Cash Balance Plan, including sole-proprietorships, partnerships, corporations, and other types of entities. Cash Balance Plans are most suitable for highly profitable businesses with stable cash flow.
With the right demographics, contributions between $100,000 and $200,000 for owners or high-compensated employees can be made. All contributions are fully deductible to the business for federal income tax purposes.
Following are helpful resources to assist you as you consider Cash Balance Plans.
Would you like to learn more about Cash Balance Plans? We invite you to learn from the experts in a series of recorded presentations below.