Advisor Connect

Cash Balance

Most people can contribute to their 401(k) without worrying about exceeding the annual contribution limit. If you’re under 50 years old, that’s $19,000 a year. If you’re 50 or older, it’s $25,000.

A small, but important segment of the population, though, has the ability to contribute much more to their retirement account. For some, a profit-sharing plan combined with a 401(k) ups the saving limit to $62,000. But if you’re looking to save even more on taxes or put more into a retirement account, a Cash Balance plan may be the right choice since it offers the opportunity to contribute significantly more to your retirement account each year.

Business owners can take advantage of a Cash Balance plan to quickly make up a retirement shortfall in a tax-efficient way. For example, a 50-year-old can contribute more than $150,000 annually to a Cash Balance plan. A 60-year-old can contribute more than $260,000. 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.

These plans can be especially helpful if clients are close to retirement age, but they’re not for everyone. Unlike profit-sharing plans with discretionary contributions, Cash Balance plans do require a mandatory annual contribution. That tends to favor professionals with an income that’s substantial and predictable from year-to-year. These plans are considered a hybrid between a defined benefit plan and a defined contribution plan.

Like many 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.

So, let’s chat about clients who may benefit most from a cash balance plan.

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