Cash Balance Pension Plans

In this video, we’re discussing cash balance pension plans with Matt Blocki from EWA. These plans are beneficial for high-earning business owners in the highest tax bracket, offering substantial tax savings. They can be considered once you’ve maxed out your 401(k), and they prioritize owners and high-income earners. While there’s a small contribution required for employees, the tax benefits often outweigh the cost. Additionally, cash balance plans provide asset protection and typically require a minimum of five years. We’re here to answer any questions and help design the right plan for you.

Video Transcript

Hi, Matt Blocki with EWA. Today we are talking about cash balance pension plans. A cash balance pension plan is often a good retirement tool for a business owner that has strong profits, typically over seven figures over a million dollars, and is subject to the highest tax bracket on those profits.

So a 401K, which is also referred to as a defined contribution plan, the limit that can go in is 61,000. Ultimately, to get the 61,000, if you have multiple employees, you’ll need to do what’s called a safe harbor or some kind of match for each employee and then a profit sharing contribution for each employee in relationship to their income.

So, to become eligible for the cash balance plan, typically this is a spillover. Once you have the total four one five C limit of made up of $61,000, you can then contribute to a cash balance plan. And this really allows you to focus on the owners of the business, the high income earners.

There will be a small contribution that has to be made for each employee, but in exchange, for example, if you’re 40 and have the income to justify it, 105,000 is the first year contribution that you can put in at 5173 thousand, at 6285 thousand.

So as a business owner, these contributions would be tax deductible, meaning that lower your profit. And again, if you’re in the highest tax bracket under the 2021 tax code, $100,000 contribution would save you $37,000 in taxes.

Obviously that would become taxable when you retire. But just looking in the cost of what you would need to put into the employees both from the cash balance pension plan, typically because of how large of a contribution you can put in the tax benefit of that, that will completely offset more than the cost.

Of the free contributions you’d have to put in for each employee. So other benefits of the cash balance plan is it is asset protected. It’s a. Kind of pension plan. Generally, the IRS looks that this plan.

Should be in place at a minimum of five years. Unless your business shuts down, then it. Can be shut down as well. But five years is kind of the minimum. Permanency threshold. They look for when. Establishing a plan and.

Continuing it. And then there are limits on the back end that can be contributed to longer than five years. Up until the maximum is hit inside the plan. We welcome any. Questions and look forward to designing a plan for you.


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