Banner image

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.

Cash Balance Plans work best when combined with 401k Plan. This provides for flexibility to the employees and employer in funding contributions yet allows for maximum contributions. Owners and highly compensated employees may be able to receive $50,000 plus in the 401k plan plus contributions ($100,000+) in the Cash Balance Plan.

A properly designed Cash Balance Plan implemented can be a great retirement savings plan, but it has risks that should be evaluated carefully before implementing.

Required Contributions
  • Contributions to a Cash Balance Plan are not discretionary and are required to be funded each year until the plan is terminated.
Fluctuation in Contributions

Several actuarial factors can cause contribution amounts to fluctuate from year-to-year:

  • If the actual return from the plan’s investment portfolio differs significantly from the plan’s target rate of return
  • Changes to the company’s employee makeup
  • An increase or decrease in interest rates

Is a Cash Balance Right for you?

A Cash Balance Plan can help you accelerate saving for retirement while reducing current tax liability, but it’s not for everyone. A Cash Balance Plan may be a good fit if you meet this criteria:

  • Seek Large Contributions – You seek contributions and tax deductions greater than $50,000/year
  • Profitable Business – Your business has strong profits and a reliable cash flow
  • Prepared to Contribute – You are prepared to contribute at least 7.5% of employees’ salaries each year
  • Time to Catch Up – You have used cash to build your business and postponed retirement savings

If your needs and abilities align here, contact us or your financial advisor to see a customized illustration of how a Cash Balance plan can help you achieve your goals.