Cash Balance Plans for Retirement

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If you’re a business owner, you are probably familiar with 401(k) and profit-sharing plans and maybe even set these up for your own employees. You might also know that in 2022, the largest tax-deductible contribution that a business owner, partner, or targeted employee is allowed to make to a 401(k) plan is $61,000 in general or $67,500 for individuals over 50 who are eligible to make “catch-up” contributions.

If you wish to make larger tax-deductible contributions towards your retirement benefits and have already made the maximum allowed contribution to a 401(k) plan, a cash balance plan could be the next step. Read on to learn about opening a cash balance plan for retirement and the criteria that you would need to meet as a business owner to be eligible for this option.

What is a Cash Balance Plan?

A cash balance plan is unique in that it has upper limits for contributions that exceed $200,000 for owners with large economic resources, depending on their age. However, this kind of benefit plan is less flexible than a 401(k) or profit-sharing plan. To be eligible, the business needs to be assured of steady earnings and profits during the current year and at least the next three to four years.

Could a Cash Balance Plan Be Right for You?

If you are considering opening a cash balance plan for your retirement, your company needs to meet the following criteria:

You as a business owner or partner want to contribute more than the $63,500 annual limit to your retirement account.
Your company already contributes 3 to 4 percent to your employees’ accounts, or is willing to do so in order to become eligible for a cash balance plan.
30-50 percent of your regular employees should ideally be 10-15 years younger than the youngest business owner. This distribution of ages allows you to skew contributions towards business partners or owners over 40 years old who wish to save for their retirement more quickly.

Maximize Your Contributions with ML&R Wealth Management LLC

Our financial advisors in Austin are experienced in helping business owners and partners navigate all of the savings and investment options available. We can help you to maximize tax benefits now and ensure that you have a healthy savings account in the future. If a cash balance plan is not the best fit for your situation, we will inform you about other potential options and help you to evaluate each of the options available to you.

As a fiduciary wealth management advisory service, we are bound to serve the best interests of our clients and disclose all of the information you need to make informed decisions. We work one-on-one with business owners to craft the best retirement saving solutions for your company and employees.