If you are interested in larger contributions than a 401(k) plan will permit, a cash balance pension plan may be right for you.
Someone 60 years or older can possibly receive $200,000 or more in pretax contributions in a cash balance plan, whereas the maximum 401(k) contribution limit for someone age 60 would be closer to $60,000. In combination with a 401(k) plan, a cash balance plan can allow much larger contributions to be made to boost your retirement savings quickly in the years as you get closer to retirement.
The cash balance plan is a type of pension plan that is maintained in pooled, managed investments, yet allows for tracking individually so that participants may see the value of their individual portfolios. Where the market value of assets will play a role in the final value of a 401(k) benefit, the cash balance plan is treated in a similar manner to a traditional defined benefit plan, such that a participant’s final benefit payment is not determined by the market, but on a predetermined formula that establishes the benefit to be paid at retirement.
Establishing a cash balance plan along with your 401(k) plan can provide your business with a significant tax deduction along with an effective tool to supercharge your retirement savings. Please contact us if you are interested in a review to see if a cash balance pension plan is right for you.