Cash Balance Plan

Tax Benefits & Accelerated Savings

Need to play catch up on retirement goals? A Cash Balance Plan is an IRS approved defined benefit plan. The dramatic growth in the cash balance plan market has come mostly from small to mid-size businesses. Yet these tax-efficient plans are also offered by leading national law firms, hospitals, and medical groups. Select Fortune 100 companies also use the Cash Balance Plan due to it cost effectiveness vs. older traditional defined benefit plans. Many firms use the Cash Balance Plan as a recruiting and retention tool in a highly competitive labor market. Cash balance plan benefits include:

Business Owner Benefits
  • Increased tax savings: ideal for employers who are looking to maximize savings and minimize employee contribution costs.
  • Significant savings (can begin over $200,000 a year subject to actuarial calculations)
  • Design features to favor contributions for owners and other targeted employees
  • Can be designed to equalize contributions between partners with different ages and goals
  • Aids in recruitment and retention of key employees
  • Can be used to to help fund an internal succession plan
  • Helps to reduce business concentration risk by diversifying your assets
Employee Benefits
  • Employer funded benefit
  • Easier to understand than traditional Defined Benefit plans
  • Portable account balances
  • Tax‐deferred growth

Cash Balance plan contributions are calculated based on the employees’ ages, compensation and employee classes. Typically, these Plans favor owners or key employees, and are paired with a 401(k) plan to reduce contribution cost and satisfy nondiscrimination requirements. HCE benefit rates are compared to the NHCE rates to assure compliance. A Cash Balance plan works especially well where owners or key employees are generally older on average than the rank and file employees. Hypothetical tax and saving advantages are illustrated in the table below (your results will vary depending on your census data):

  • Owners receive 92% of contributions vs. 50% for the SEP; 84% for the SIMPLE, and a HUGE increase in dollar savings and tax benefits. This maximum allowed benefit in this example can be lowered if desired.
  • Class allocations allow the owner to put in more on a percentage basis than for employees
  • Owners maximize savings at $275,774; minimize costs with a net plan cost of (96,721), due to higher dollar contributions and associated tax benefits

A summary of efficiency levels on common Plan types is listed in the table below:

If your retirement planning needs a healthy boost or you would like to enjoy greater tax benefits, you owe it to yourself to explore how a cash balance plan can accelerate your path to the retirement security that you deserve. There’s no cost nor obligation for a detailed consultation and plan proposal that will help you evaluate the option that will work best for your needs. We can help you find the right blend of cost, benefit, and efficiency.

Learn more about our Defined Benefit Plans please CLICK HERE.

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