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Cash Balance Plans

Maximize your retirement savings while minimizing taxes with the power of cash balance and defined benefit pension plans.

Reducing taxes while increasing retirement savings should be an intriguing idea for high net worth business owners and partners.

Are you a business owner looking for additional tax savings? Are there executives within your organization who want to save more for retirement than the allowable limits in your current 401(k) or profit sharing plan? Or perhaps you’re a small business owner looking to accelerate your retirement savings. If so, then consider a Cash Balance plan.

What is a Cash Balance Plan

A Cash Balance Plan is a retirement plan that incorporates features of a defined benefit plan with a defined contribution plan to provide eligible employees with a specific benefit at retirement. Like a defined contribution plan, such as a 401(k), it provides participants with an easy to understand benefit through an annual statement of their cash balance account value.

How does a Cash Balance Plan Work Exactly?

A Cash Balance Plan is used in combination with a 401(k) Profit Sharing Plan in order to maximize retirement savings and tax deductions for business owners. Unlike a 401(k) plan, all assets within the Cash Balance Plan come from the employer, assets are pooled and investments are employer-directed and employer-guaranteed.

What is the benefit of a Cash Balance Plan?

For many successful business owners, the contribution limits of a 401(k) alone may not be enough to achieve retirement savings goals. Adding a Cash Balance Plan can help.

Employees benefit too with a guaranteed company contribution to their retirement account.

Why are cash balance plans popular for small businesses?

  1. Taxes: Many business owners and partners feel they are paying too much in income tax. A cash balance plan allows them to put more into retirement than a traditional 401(k) plan, reducing their taxable income.

  2. Combo: A Cash Balance Plan works best when combined with both a 401(k) and a Profit Sharing Plan—allowing for business owners and employees to save more toward retirement.

  3. Qualified: This is an IRS-qualified Defined Benefit retirement plan.

  4. Retirement Savings: Americans aren’t ready for retirement and the Boomer generation feels it the most as they approach retirement age. Cash Balance Plans allow older business owners a way to accelerate their personal retirement savings.

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How do I start a Cash Balance Plan?

Cash Balance Plans can be offered in addition to other company-sponsored retirement plans like a 401(k), Profit Share Plan or SIMPLE IRA Plan. If you're seeking to add a Cash Balance Plan before this year's December 31 deadline, you'll need to get started by October 15—and it's easier than you think. Here's how it works with Kerr Wealth Management:

  • Contact us, and we'll send you a form (called a census template). The census template includes information like employee salaries, date of birth, date of hire, and ownership information. Send the form back to us after it's filled out, along with a copy of the Adoption Agreement for your existing 401(k) plan.

  • An actuary will prepare an illustration that depicts what adding a Cash Balance Plan to your company 401(k) can do for your specific business, including the specific costs and benefits. Once you have this information, you can decide whether you'd like to move ahead.

  • If you decide you'd like to start a Cash Balance Plan, we will work with you and an actuary to coordinate plan documents that integrate with your existing 401(k). Documents must be signed by December 31 in order to get the tax savings for this year. You won't have to put any money into the plan until you file your annual taxes next year.

*Cash Balance Plan investments can fluctuate in value which may offset plan contributions and tax deductions. I.e. the plan may  be over-funded or underfunded depending on investments fluctuations. It is important to discuss investment allocations with your investment advisor and plan actuary.

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