Beyond 401(k): Exploring Cash Balance Plans for Business Owners
If you’ve maxed out your 401(k) contributions but still want to set aside more for retirement and lower your tax burden, a cash balance plan might be the answer.
These plans are designed for high-income business owners who need more flexibility than a traditional defined-benefit plan.
How Cash Balance Plans Differ from 401(k)s
- Defined Benefits: In a cash balance plan, participants receive a “credit” based on a percentage of their income, plus an annual interest credit.
This setup offers more predictability than traditional market-driven retirement accounts. - Investment Risks Managed by the Plan: The business bears the investment risk, guaranteeing returns based on the plan's structure.
This makes cash balance plans attractive for those looking for steady, predictable growth without market volatility.
Why Cash Balance Plans are Ideal for High-Income Earners
- High Contribution Limits: Unlike 401(k) plans, cash balance plans allow for contributions that often exceed six figures.
This makes them a perfect solution for business owners who want to contribute more aggressively toward retirement. - Tax Deductibility: Contributions to a cash balance plan are tax-deductible for the business, which can result in substantial tax savings.
These contributions help reduce the business's taxable income while funding a secure future for the owner and any employees involved in the plan.
Pro Tip: Combining a cash balance plan with a 401(k) can maximize flexibility, allowing you to make high, predictable contributions in the cash balance plan while giving employees flexibility with their 401(k).
Curious if a cash balance plan is right for you? Let’s discuss how it can complement your 401(k) to maximize tax savings and retirement security.
Disclosures: For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.