Is a Cash Balance Plan Right for You?

​This letter is part of a series on cash balance retirement plans, one of the best strategies to help high-earning Americans reduce taxes and accelerate their retirement savings. Since the loosening of IRS restrictions in recent years, cash balance plans have become extremely popular and only continue to grow, commanding over $1 trillion in assets. Adding a cash balance plan on top of a 401(k) profit-sharing plan can generate hundreds of thousands of dollars in annual tax savings. Cash balance plans are without a doubt one of the best above-the-line tax deductions available today. By increasing deductions by thousands—or hundreds of thousands—of dollars, they have the potential to massively reduce tax burdens for wealthy Americans. But how do you know if a cash balance plan might be right for you or your business? Individuals or businesses with the highest likelihood of benefiting from a cash balance plan include: Professionals with high incomes A large majority of cash balance plans are held in professional practices, with doctors’ and dentists’ offices alone accounting for 37 percent of all existing cash balance plans. The high contribution limits, ability to accelerate retirement savings (particularly helpful for those who began their careers with substantial education debt), and flexibility for multi-partner firms all make cash balance plans an appealing option for professional practices. Business owners over 45 or who want to aggressively expand their retirement savings Over fifty percent of Americans are not on track to meet their retirement needs, a staggering figure. For many people, saving for retirement is simply not a top priority. Business owners in particular, often spend their lives funneling money back into their businesses and neglect their retirement accounts. By the time they reach their forties, they’re stuck trying to catch up to their savings goals. With the high contribution limits of cash balance plans, catching up on retirement savings becomes much simpler (and brings some excellent tax savings to boot). Highly-profitable companies For any successful business, attracting and hiring the top talent is crucial. Having a cash balance plan in your business’s retirement options sets you apart from the competitors and is an excellent draw for potential employees. The significant tax deductions that a cash balance plan brings also help businesses to maintain a healthy bottom line. Many people, of course, don’t fit into any of these categories and still reap excellent benefits from a cash balance plan. The best way to find out whether a cash balance plan might be right for you is to discuss your options with your financial advisor. The potential benefits might blow you away.