Amplify Your Business With Help From Cash Balance Specialists

We’re circling back to the topic of cash balance plans and their benefits for business owners — with an important insight.

A cash balance plan can be a great solution for business owners who’d like to lower their tax bills and raise their retirement savings. It combines features of a defined contribution plan with the higher contribution and deduction limits of a pension plan.

Like a 401(k) plan, cash balance plans are considered qualified plans. That means they’re eligible for tax deferral and creditor protection. Plan contributions are set and funded by employers.

Here’s our important insight about cash balance plans: You don’t have to be the expert.

Before you talk with clients, start by consulting our team of cash balance professionals. They can walk you through the best way to meet your clients’ needs. Then consider partnering with a third-party administrator. TPAs have expertise in plan design, especially complex ones. And many TPAs have cash balance specialists on their team. (See more reasons to team up with a TPA.)

You’ll still be the one bringing this powerful solution to clients and highlighting your value by offering more than a 401(k). Your team of specialists, meanwhile, can work in the background or provide client-facing support.

Cash Balance Advantages

Here’s a recap of what business owners can experience with a cash balance plan:

Higher contribution limits. Participants enjoy contribution limits based on their age. For example, in 2022, a 55-year-old could contribute up to $222,000 to an individual cash balance account. That person’s contribution limit to a 401(k) account would be only $27,000 ($20,500 contribution limit + a $6,500 catch-up contribution).

Consider This Hypothetical Scenario
for a 55-Year-Old Business Owner:

This example is hypothetical and for illustrative purposes only. It assumes that the business has a 401(k) plan with a profit-sharing and cash balance plan. The tax savings estimate is based on a 42% combined rate for federal and state laws.

Actual tax savings will vary based on your situation.

Tax deductions. Business owners can deduct contributions to their own account and to their employees’ accounts from their business income.

Tax-deferred earnings. Participants enjoy tax-deferred earnings until they begin withdrawing assets during retirement.

Advantages for Employees

Here are features that can help business owners attract and keep key employees:

• Employees don’t have to fund their plan, and employers cover all plan costs.
• Cash balance plans are easy to understand.
• Account balances are portable and may be covered by the Pension Benefit Guaranty Corporation.

Is a cash balance plan the right fit for a business owner you know? Talk to your retirement plan consultant at The Standard to explore solutions.

For financial professional use only.