Cash Balance Plans
What is a Cash Balance Plan?
Tax deferral is one of the key benefits of a qualified retirement plan. 401(k) plans limit annual contributions to $53,000, or $59,000 for those 50 and older. For those looking to contribute beyond these limits, a cash balance plan may be the solution.
With cash balance plans, maximum annual contributions are determined by your age. Contribution limits can be found here.
Does Cash Balance make sense for you?
Cash balance plans require employers to fund certain contributions every year. With that in mind, Employers with significant cash flow who operate in non-cyclical industries tend to be the best fit. Ask yourself the following questions. If you answer “yes” to most of these questions, a cash balance plan could be a good fit.
- Do the owners/key employees maximize their 401(k) contributions each year? Do they wish to contribute more?
- Is there a low ratio of non-highly compensated employees to highly compensated employees?
- Are the highly compensated employees generally older than non-highly compensated employees?
- Is cash flow significant and consistent from year to year?