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Cash Balance Plan Considerations

The number of new cash balance plans continues to rise each year. Cash balance plans are a popular retirement vehicle because they can provide a rapid accumulation of benefits and significant tax deductions. For example, by incorporating a cash balance plan, a 55-year-old business owner can contribute $108,000 to their retirement program on an income of only $75,000.

CASH BALANCE PLAN CONSIDERATIONS

IS $56,000 ENOUGH?

Cash balance plans make sense when one or more employees or owners can benefit by contributing more than the $56,000 limit ($62,000 for catch-up eligible employees) to a retirement program. For example, the maximum allowable contributions can exceed $200,000 for employees who are over age 55 and have at least $150,000 in income.

THE PLAN MIGHT PAY FOR ITSELF

In more than half of all cash balance plans Watkins Ross administers, the estimated tax deferment on the cash balance plan contribution more than covers the added costs associated with offering a cash balance program.

MORE BANG FOR YOUR BUCK

Cash balance plans can be used to provide larger contributions to targeted employees. In fact, for every dollar a targeted employee might receive in a standard cross tested profit sharing allocation, he can generally receive at least 40-60 cents more in a cash balance plan, without increasing the total allocations to other employees.

TYPES OF BUSINESSES

Cash balance plans are especially popular for professional service groups (particularly medical practice groups), multi-generational family-owned businesses, and Single member S-Corporations taking Large S-Corporation distributions.

Wondering if a cash balance plan is right for your firm? A good first step is to download our Cash Balance Plans Brochure and complete the checklist, Is Your Business A Good Candidate For A Cash Balance Plan.

If you have questions or would like help determining if you should implement a cash balance plan, please contact David Paauwe, MSPA, EA at dpaauwe@watkinsross.com.

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