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Retirement Planning for Business Owners

Deduct Over $300,000 Per Year with a Cash Balance Retirement Plan

What are Cash Balance Plans?

Cash Balance Plans combine the large benefits of a traditional pension plan with the flexibility and simplicity of a 401(k). Where traditional defined benefit plans are messy and variable from year-to-year, cash balance plans offer a simple, easy-to-understand account balance for all participants. Where 401(k) plans offer modest contribution limits, Cash Balance Plans allow you to save even more.

Improving the traditional defined benefit plan

Over the past few decades, companies have shifted away from traditional pension plans. Traditional Defined Benefit Plans were, and still are, a fantastic opportunity to make large tax deductions and help employees save for retirement. However, over the years, defined benefit plans started slowly disappearing due to their complex structure and uncertain liability. The benefits were great, but the administration was not.

Here comes the cash balance plan

Cash Balance Plans solved the complexity issues associated with Defined Benefit Plans. Cash Balance Plans can provide business owners the same large contributions as traditional Defined Benefit Plans with more manageable, easy to understand administration.

In a Cash Balance Plan, each participant has an individual “account balance.” Each year the participant’s account is credited with:

  • A cash balance allocation: An annual contribution to the account (can be a different amount for different individuals and flexible from year to year).
  • An interest credit – Interest earned on the account during the year, generally based on a fixed percent.

A participant can receive credits within their account until retirement or until the plan is terminated. After leaving the plan, the participant or plan owner can rollover their entire account balance to their personal IRA.

Why not just start a 401(k)?

401(k) plans are a great way to utilize tax-deferred savings. Unfortunately, they also have their limits, primarily, the plan’s maximum annual contribution.

For 2022, the maximum individual deduction within a 401(k) plan is just $67,500. In a Cash Balance Plan, you might be able to contribute and deduct approximately 5 TIMES that amount annually. Depending on the individual’s age and income, Cash Balance Plans can offer more than $300,000 per year in benefits. Furthermore, you can pair a cash balance plan with your existing 401(k), allowing you to get the best of both worlds!

Who is a good fit?

Cash Balance Plans are a great fit for all companies looking for large tax savings and significant retirement benefits. They are particularly advantageous for owners of small or owner only companies who don’t wish to pay outsized income taxes on their business profits.

Cash Balance plans have the flexibility to target individual employees with specific benefits and can be combined with a 401(k) Profit Sharing Plan. They can provide significant benefits to owners and highly compensated employees with minimal business costs.

To see if the Cash Balance Plan is a good fit for you and your company, please reach out to us at 303-645-4800 or Impact@ImpactWealth.com.

Your Impact Wealth Team

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Highlights

Tax Benefits Now - contributions to the plan are tax deductible and investment return is tax deferred. Significantly reduce your current income tax. 

Tax Benefits Later - can be designed with cash value life insurance providing a tax-free death benefit and tax-free retirement income.

Increased and Accelerated Retirement Savings - cash balance plans permit larger annual tax-deductible contributions and benefits than is possible with a 401K profit sharing plan.

Niche Retirement Plan - great retirement plan fit and solution for physician groups, dental groups, small business owners, self-employed individuals and other professional practices.

Creditor Protection - the plan assets in a cash balance plan can be ERISA creditor protected.

A Smarter Defined Benefit Plan...

  • Easy to understand
  • Age neutral for staff
  • Increased flexibility
  • Consistent benefit growth

Complement to Existing or New 401K Plan

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