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Cash Balance Plan

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What is a Cash Balance Plan?

The IRS calls the Cash Balance plan a “Hybrid Plan” due to the nature of the plan being a cross of a 401k and Define Benefit plan.  A Cash Balance plan is qualified retirement plan that can be implemented along with a 401k/Profit Sharing plan that can provide huge tax savings for partners/business owners.  In a Cash Balance plan, the contributions are all employer funded in to a single account.  These contributions are tax-deductible.  Due to the PPA (Pension Protection Act of 2006), the IRS reaffirmed these plans were valid and that the contributions could be “age-weighted” to provide more flexibility in the design and administration of the plan.

Is a Cash Balance Plan right for you?

Many partners and professionals find Cash Balance an excellent way to increase contributions to their retirement accounts. We have found that the following are typically good candidates:

  1. Partners or owners who desire to contribute more than $50,000 a year to their retirement accounts.
    Many professionals and entrepreneurs neglect their personal retirement savings while they’re building their practice or their company. They often have a need to catch up on years of retirement savings. Adding a Cash Balance Plan allows them to rapidly accelerate savings with pre-tax contributions as high as $100,000 to $240,000, depending on their age.
  2. Companies already contributing 3-4% to employees, or at least willing to do so.
    While Cash Balance Plans are often established for the benefit of key executives and other highly compensated employees, other employees benefit as well. The plan normally provides a minimum contribution between 5% and 7.5% of pay for staff in the Cash Balance Plan or a separate Profit Sharing 401(k) plan.
  3. Companies that have demonstrated consistent profit patterns.
    Because a Cash Balance Plan is a pension plan with required annual contributions, consistent cash flow and profit is very important.
  4. Partners or owners over 40 years of age who desire to “catch up” or accelerate their pension savings.
    Maximum amounts allowed in Cash Balance Plans are age-dependent. The older the participant, the faster they can accelerate their savings.