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Cash Balance Plans

a type of tax – qualified Defined Benefit Pension Plan for small business owners, self-employed individuals or professional groups such as physician groups, dental groups or attorney practices

What is a Cash Balance Plan?

A cash balance plan is a “hybrid” retirement plan that combines features of both defined benefit and defined contribution plans. While a traditional defined benefit plan provides for a specific benefit at retirement, a cash balance plan provides the benefit at retirement as an account balance. Plan sponsors contribute a flat dollar amount or percentage of compensation (“pay credit”) and credit a specific interest rate each plan year. And while a cash balance plan may have higher administrative costs than a 401(k) plan, largely because its funding must be certified by an actuary each year, its tax benefits can offset this additional administrative cost.

Potential benefits of a Cash Balance Plan: 

  • Tax Benefits NOW: Contributions to the Plan are TAX DEDUCTIBLE and investment return is TAX DEFERRED, which could significantly reduce your current income tax burden.
  • Tax Benefits LATER: Can be designed with Cash Value Life Insurance providing a tax free death benefit and tax free retirement income.
  • Increased and Accelerated RETIREMENT SAVINGS: Cash Balance Plans permit larger annual tax deductible contributions and benefits than is possible with just a 401(k) Profit Sharing Plan. 

401(k) Example Contribution Limit Comparison:

If you have an existing 401(k) plan, you will have three relationships in place: Record Keeper, TPA and Advisor. What if you don't want to change one, or all, of these existing relationships? No problem. Cash Balance plans work with existing OR new 401(k) Plans, and typically can work in tandem with existing 401(k) Profit Sharing Plans without any significant changes. 

Click below to view a Cash Balance presentation:

Cash Balance - Defined Benefit Presentation

Check out Wealth in Waves, a limited-series podcast featuring advanced planning concepts for mature business owners along the Gulf Coast:

How Cash Balance Plans work: 

How small business owners can use Cash Balance plans as a Defined Benefit retirement option and potentially increase the ceiling of tax deferred contributions above typical 401(k) limits.

Business Owner Succession Planning: 

80% of all small businesses "fail to sell". So what’s your plan? Do you have a plan? Both the value and the eventually successful sale of your business are both greatly enhanced by some basic pre-planning.

Non-Qualified Deferred Compensation:

How business owners can use "Golden Handcuffs" to incentivize their key employees to stay loyal to the organization, particularly in competitive industries. 


Tax Planning vs Tax Preparation:

Typically, your CPA's job is to look at the present and the past when determining your tax liability. Tax Planning, on the other hand, is about looking forward.  


Take a deeper dive in our Article Library:

What you need to know about controlled & Affiliated groups:

executive / business owner planning articles written by Gulf coast financial advisors: 

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Cash balance Case studies:

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Disclosure: A cash balance plan may not be right for all companies. These plans must be funded on an annual or more frequent basis. Employers should be confident the firm’s cash flow and profitability will permit it to meet its funding requirement. Also, the responsibility of investing the plan assets for the participants rests with the employer. If investment returns do not keep up with funding requirements, additional and often unanticipated contributions will have to be made.

Information presented on this site is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any product or security. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

Provide your contact information below to start a Cash Balance Plan conversation. For a free proposal, fill out this Retirement Plan Design Study Request Form and email to jnull@gulfcoastfa.com.