Recently we introduced a segment like this one on Cash Balance plans because, for the right client, it can mean an opportunity to make a substantially larger retirement plan contribution than is possible with other plan designs. It’s even possible to combine a Cash Balance plan with a 401(k) plan to extend the feature set and provide benefits for employees as well as owners.
Business owners can take advantage of a Cash Balance plan to quickly make up a retirement shortfall in a tax-efficient way. This can be especially helpful if they are close to retirement age.
For example, a 50-year-old could contribute more than $143,000 annually to a Cash Balance plan. A 60-year-old could contribute more than $235,000. The actual amount depends on your income and age.
You can also pair a Cash Balance plan with a traditional 401(k) to reward key executives and provide even more plan design flexibility.
Please keep in mind that we need to formally set up a new Cash Balance plan by the end of the year in order for it to be effective for this tax year. The actual contributions can generally be made through a taxpayer's filing date including extension, but we need to have the plan on the books by December to make this work. So it’s very timely to begin talking with clients now about income and tax planning and whether a Cash Balance plan makes sense.
Cash Balance plans can help high-income earners build substantial retirement savings in a relatively short amount of time, but they’re not for everyone. Unlike profit-sharing plans, Cash Balance plans require a mandatory annual contribution. That tends to favor professionals with substantial and predictable income from year-to-year. These plans are considered a hybrid between a defined benefit plan and a defined contribution plan and, like all plan designs, they have their own jargon and complexities that sometimes get in the way. That alone may present a real competitive opportunity since some of your peers may not make the effort to include this important plan design in their repertoire.
When it comes to Cash Balance plans, ABG of Michigan has your back. You can rely on our professional illustrations, proposals and meeting support to help you put your best foot forward.
So, let’s chat about clients who may benefit most.