What is a Cash Balance Plan
Cash balance plans, also known as "hybrid" plans, combine the high contribution limits of traditional defined benefit plans with a business's existing 401(k) plan. These types of plans can be an ideal solution for business owners seeking to potentially deduct six figures in taxes annually and potentially add seven figures to their retirement savings in 5 – 10 years. At retirement, cash balance plan assets can be converted into a guaranteed perpetual retirement income stream to replace your compensation.
Ideal Candidates
Owner Profile
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Owner Looking for More Tax Deductions
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Salary $250,000+
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Want to Make Six Figure Contributions into Business Retirement Plan
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Companies with Consistent Profitability
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Family Businesses & Closely Held Businesses
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Older Owners who Need to Catch Up on Retirement Savings
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A 50-year-old business owner could contribute $250,000 to his retirement plans*
A 55-year-old professional could contribute $300,000 to her retirement plans*
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*Assuming a 45% tax bracket of combined Federal and state taxes.
Business Profile
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Physicians
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Dentists
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Attorneys
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CPA
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Engineer
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Farmer
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Independent Contractor
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Financial Advisor
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Insurance Agent
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Franchisees
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Real Estate Professional
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Mortgage Broker
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Marketing Services
Projected Cash Balance
Account Value
Owner 1 : $3,352,505
Owner 2 : $3,193,206
Owner 3 : $2,298,738
Owner 4 : $3,210,918
Projected Cash Balance Plan
Annual Benefit
Owner 1: $276,778
Owner2 : $226,180
Owner 3 : $238,626
Owner 4 : $232,188
Assumptions used for projection:
3% pre-retirement ; G94 - 1994 Group Annuity Reserving Proj 2002, Scale AA (unisex) at 3% post-retirement ; 0% salary increase
*Assuming a 40% tax rate; taxes are deferred only.
Plan designs are for illustration purposes ONLY. Contribution amounts are subject to change based on final year-end census data.
If company is a Corporation, an S-Corporation or an LLC taxed as a corporation, owner(s) compensation listed above must be reported on Form W-2
Percent of Contribution to Owners : 88%
Cash Balance Plan Benefits
Reducing Taxes
Business owners can save significantly on corporate and personal taxes
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Accelerating Retirement Savings
Many owners can double or even triple their pre-tax retirement savings
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Attracting and Retaining Top Talent
Adding a Cash Balance plan can make a firm’s retirement package much more appealing to future partners and employees
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Easy to Understand
Unlike traditionally complex defined benefit plans, Cash Balance plans offer clarity with individual participant accounts and statements
Flexibility
Not everyone needs to participate in a Cash Balance plan. Different contribution amounts can be specified for different participants or groups. Almost all business entity types and sizes can adopt a plan
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Portability
Participants can roll over their Cash Balance accounts into an IRA or another qualified plan
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Asset Protection
Cash Balance plan assets are protected from creditors in the event of bankruptcy or lawsuits