Plan Types

 
 

Cash Balance Plans are a type of qualified retirement plan that can allow business owners and highly compensated employees to accelerate savings and maximize tax deductions.

Overview

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.

 

Maximum Annual Contributions by Owner Age

  • $300,000
  • $240,000
  • $180,000
  • $120,000
  • $60,000
  • $0
  • $19,500
    $37,500
    $116,850
    35
  • $19,500
    $37,500
    $142,500
    40
  • $19,500
    $37,500
    $173,850
    45
  • $26,000
    $37,500
    $210,900
    50
  • $26,000
    $37,500
    $247,950
    55
  • $26,000
    $37,000
    $252,225
    60
  • $26,000
    $37,500
    $256,500
    65
 
 

How It Works & Best Fit

How It Works

How Do Cash Balance Plans Work?

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)

 
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Best Fit

Who is a good fit for a Cash Balance Plan?

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.

 
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Q & A and Examples

Q & A

It is important to be informed about how Cash Balance Plans work and the impact they will have on your business. Below is a list of frequently asked questions about Cash Balance Plan to help you evaluate them as an option for your business.
 
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 contributed. All contributions are fully deductible to the business for federal income tax purposes.
It is important to select investments that compliment your Cash Balance Plan because these plans are designed to target a specific rate of return between 4% and 7%. Choosing investments whose return fluctuates significantly from the target rate of return can cause an increase or decrease in the required annual funding of the plan.
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Examples

This example illustrates the benefit of a Cash Balance plan for a company with one owner who maximizes contributions to both the Cash Balance and 401(k) plans.
 
Example: One Owner – Maximum Contributions in Both Plan
 
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Resources

Available Resources

Following are helpful resources to assist you as you consider Cash Balance Plans.

 

On-Demand Webinars

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.