Is A Cash Balance Plan Right For You & Your Company

Do you own a business? Do you currently offer a 401(k) Profit Sharing Plan? Do you wish you could put away more tax deferred dollars for retirement? If your answer is “yes” to these questions, you may consider a Cash Balance Plan for your company.

The IRS limits the amount that can be contributed to a Defined Contribution Plan (i.e. 401(k) Plan) for any individual in a given year. That limit for 2018 is $55,000 (Plus $6,000 if over age 50).

By adding a Cash Balance Plan, which is a special type of Defined Benefit Plan, the potential for additional retirement plan funding can increase by a sizeable amount. This no only boosts retirement benefits, but also significantly reduces current taxable income.

As previously mentioned, a Cash Balance Plan is a defined benefit plan, but as opposed to a traditional defined benefit plan it, acts a bit like a defined contribution plan. Participants receive statements telling them exactly what their benefit is on a regular basis. A Cash Balance Plan offers portability when employees terminate their employment, allowing them to “cash out” or roll their funds to an IRA. The actual contribution to the plan each year is an actuarial calculation dependent on participants’ ages and the fund balance.

Examples of those who could benefit from adding a Cash Balance Plan to their retirement portfolio are the following:

  • Business owners with high cash flow
  • Medical practitioners
  • Older Business owners who delayed their retirement savings
  • Closely held / Family businesses
  • Employers who are already contributing 5% to their employees through a Profit Sharing Plan
  • Highly profitable businesses of all types
  • Companies wanting to attract high level employees


Please contact Anne Christian for more personalized details for your company. I’d be happy to do a projection to see how a Cash Balance Plan would work for you.

Anne Christian, CPA is a member of the Retirement Services department at BWTP, P.C. Read more about Anne here.

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