Cash Balance Retirement Plans? Definitely!

You may have heard of “Cash Balance” pension plans. Yes, you must! Investment advisors should broaden their offerings to include cash balance plans, as they have rapidly become one of the most popular retirement plan design options in recent years.

What makes these pension programs so well-liked?

Put simply, it’s the possibility of business owners amassing greater wealth over time. In recent years, hybrid defined benefit plans have gained popularity among business owners due to their ability to lower tax liability and speed up retirement savings. This is appealing to business owners, but Cash Balance plans also provide employees with their own set of benefits. Everyone benefits!

The advantages of Cash Balance plans are as follows:

Immediate tax deductions that can be used to offset higher tax rates. Consequently, Cash Balance plans are a prudent response to the problem of ever-increasing tax rates. Due to the lack of immediate taxation on plan contributions and investment earnings, business owners can amass greater long-term wealth. That’s a major perk in light of the widespread consensus that tax rates will rise in the years ahead.

Save up more money for the future. The typical Cash Balance plan is sold as an augmentation to an existing 401(k) retirement plan, which limits annual contributions to $66,000 (or $73,500 for those over the age of 50). Business owners can invest the tax savings from implementing a Cash Balance plan and move closer to their desired retirement age.

Business owners can make up for lost time and get on track for retirement with the help of Cash Balance plans. There is an age-based cap on how much a participant can save. Contributions of $150,000 per year are typical for a business owner, and can rise to over $300,000 if they are very close to their retirement age.

Chart CBP

Benefits for business owners, executives, and workers in a Cash Balance plan are highly customizable. Because of their adaptability, Cash Balance plans can be used for a wide variety of purposes, from rewarding top performers to addressing one-off requirements.

Similar to 401(k) plans in terms of portability. Rolling over a lump sum distribution from a qualified retirement plan into an individual retirement account (IRA) is an option for participants who are retiring or leaving the company. As with 401(k) plans, cash balance plan benefits cannot be touched by creditors.

To determine if a Cash Balance plan is right for you and your business, please read our post, “How Cash Balance Plans Work,” or give us a call at (312) 762-5960. You can ask us anything; we’re here to help.