Cash balance plans are surging in popularity. According to a recent survey, the number of cash balance plans has nearly quadrupled since 2001. Cash balance plans offer a number of advantages that other retirement vehicles don’t. Depending on the firm, annual tax deductions of $100,000 to $200,000 per owner are possible. Owners can also put away more than they can in new comparability plans. With a cash balance plan, owners can contribute up to $200,000, versus $49,000 in a New Comparability plan. In addition, cash balance plans can be combined with a profit-sharing or 401(k) plan to produce larger contributions, especially for Principals and Owners. The Profit Sharing and 401(k) components can also provide flexibility in the combined plan.
As advantageous as these retirement vehicles can be, the benefits are only realized with the right demographics. So who is a good candidate for a Cash Balance plan?
1. Companies where the owners are older and have considerably higher compensations than NHCE’s
2. Partners who desire to contribute more than $49,000 per year
3. Companies already contributing over 5% for staff in a separate Profit Sharing Plan
4. Companies who have demonstrated consistent profit patterns
5. Partners over 40 who desire to accelerate their retirement plan savings
Example of a model Cash Balance census
1. Notice that the owners are older and earn considerably more than the other participants.