How a cash balance plan can help business owners maximize retirement savings

A Cash Balance plan will help you maximize your retirement savings if your business has steady cash flows. This plan provides both the traditional benefits of a pension and the flexibility offered by a 401k/profit sharing plan.

Participants can receive their benefits either in a lump-sum or in annuity form. Employees will find them easier to understand.

Contributions with tax-deductible contributions

Contributing to a traditional or profit sharing 401(k) plan could help you maximize your retirement savings. The plan allows you to make pretax contributions and defer income taxes until you retire.

A Health Savings Account can be set up by your employer if you have a high-deductible insurance plan. You can fund your HSA with pretax dollars. The HSA is tax-free and can be used for qualified medical expenses.

Your charitable contributions may be reduced by 20% to 60% depending on how much you itemize. Temporarily, the maximum cash donation to charity is now 100% of your AGI.

Flexible Savings Options

It can be difficult for many people, whether they are self-employed or business owners, to maximize their retirement savings. You have many options that can help you maximize your retirement savings while reducing your tax liabilities.

Cash balance plans are an option. They combine a 401(k), defined benefit (DB), and cash balance plans. It has higher contribution limits and provides future benefits to participants.

The design of a cash balance plan offers more flexibility. This plan can be used either as a standalone plan or in conjunction with a profit sharing plan under 401(k).

Cash balance plans can be a great way for high-income earners, who can stash large amounts of pretax money each year to help with their retirement financial goals. If you are contributing at least $58,000 each year to your 401(k), this plan can be a great choice.

Annuity options

A cash balance plan, a type de defined benefit plan, allows you to maximize your retirement savings. Participants are eligible to earn interest credits and pay credits, which accumulate in a "hypothetical” cash balance account. You have the option to receive an annuity, a lump sum, or retirement payment when you reach retirement age.

If you receive a lump sum distribution you can roll it over to an individual retirement account, or into another employer's plan, if your cash balance plan supports rollovers. An annuity will give you the option of receiving a lump sum payment or monthly payments.

Annuity options may help you increase your retirement savings but also come with higher risk. When selecting an annuity it is important that you consider your needs and goals. An advisor who is experienced in financial planning can help you make an informed decision so that you don't make a poor choice.

Investment Options

Cash balance plans may be an option for business owners who wish to boost their savings and get significant tax deductions. This type plan is typically more flexible than 401(k), SEPIRAs, and offers greater contribution limits.

The cash balance plan invests in a pooled trust account, managed by an advisor for the employer. This allows the trustee manage assets conservatively, avoiding large losses that could affect benefit payouts. It also prevents the Trust from becoming too funded (when trust growth exceeds cash balances being tracked by participants).

Cash balance plans typically offer interest credit on plan contributions. These credits can be based either on a fixed rate, or a market-related Index. These interest crediting rate and the actual rate at which the plan's investments return are calculated help determine what hypothetical account balance a participant will receive upon retirement.

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A Cash Balance plan will help you maximize your retirement savings if your business has steady cash flows. This plan provides both the traditional benefits of a pension and the flexibility offered by a 401k/profit sharing plan. Participants can receive their benefits either in a lump-sum or in annuity form. Employees will find them easier…