Cash Balance Plans for Business Owners
What is a Cash balance plan?
Put More Toward Retirement and Reduce Taxes Today
If you’re a successful business owner already maximizing your 401(k), you may be looking for another way to reduce taxable income while building retirement savings.
A cash balance plan is a type of employer-sponsored defined benefit retirement plan that can allow substantially larger contributions than a 401(k) alone. In the right circumstances, a business owner may be able to contribute more than $200,000 per year toward retirement on a tax-deferred basis.
The business generally receives a tax deduction for eligible contributions, and the owner generally does not pay income tax on the contribution when it goes into the plan.
The amount you can contribute depends on your age, compensation, plan design, funding requirements, and other factors. A plan must be designed and reviewed for your circumstances
Be diligent but don't be afraid! Cash balance plans can be costly to set up and maintain so we only recommend them for specific qualifying clients.
Is a Cash Balance Plan Right for Your Business?
Cash balance plans can be attractive for owners who have consistent profits, want to accelerate retirement savings, and can commit to funding the plan over multiple years. They may be particularly useful for:
Medical and dental practice owners
Attorneys and law firm owners
Consultants and other self-employed professionals
Owners of profitable closely held businesses
Business owners who are approaching retirement and want to increase their savings
A cash balance plan can often be combined with a 401(k) and profit-sharing plan, potentially allowing a business to provide meaningful retirement benefits while increasing the owner’s tax-advantaged savings. The combined contribution and deduction limits require careful analysis.
Understand the Costs and Commitments
Cash balance plans can be costly to set up and maintain compared with simpler retirement plans. They generally require plan design, annual administration, and an actuary to calculate funding requirements. Depending on your workforce and plan design, the business may also need to fund benefits for eligible employees.
These plans generally involve ongoing funding commitments, so they work best when your business has reliable cash flow. The decision should account for the tax savings, setup and administration costs, employee benefit costs, and your ability to make future contributions.
How Crescent CPA Can Help
We help business owners determine whether a cash balance plan fits their tax strategy and long-term financial goals. We can work with you and a qualified plan administrator or actuary to evaluate:
Your potential contribution and tax deduction
How a plan could work alongside your existing 401(k)
Setup, annual administration, and employee benefit costs
The impact on business cash flow
Whether the long-term commitment makes sense for your plans
Crescent CPA is based in New Orleans and works with business owners and high-income professionals in Louisiana, Texas, Florida, and nationwide.
Contact
(504) 264-3289 - text preferred
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Address:
Crescent CPA LLC
4823 Pitt Street, New Orleans, Louisiana 70115