Follow Chad Linkedin
Email Chad Email
Financial
Oct 3, 2017

Is A Cash Balance Plan Right For You?

Sponsored Content provided by Chad Wouters - Partner, Earney & Company, LLP

For CPAs, the beginning of fall always represents final deadlines for individual and business returns (calendar year), along with an increased focus on planning and preparing for 2017 filings.

We spend a lot of time with clients this time of year, helping them accomplish their goals for the year, which generally focus on tax minimization and cash flow management. 

One of the planning opportunities we always look at is retirement options for clients and how to maximize tax benefits with future distribution goals. One tool available to taxpayers is a form of defined benefit plan commonly referred to as “cash balance plans.”

The difference between a defined benefit plan and a defined contribution plan is really based on who contributes the money to the plan. A defined benefit plan is typically funded by the employer, whereas a defined contribution plan is primarily funded by the employee’s deferral into the plan.

Traditional defined benefit plans are becoming less and less used by employers and governments as they look to shift more of the cost and responsibility to save for retirement onto the employee. However, the use of cash balance plans has been increasing since first introduced in 1985. Sole proprietors or partners in medical, legal and other professional groups are responsible for a majority of this growth.

One aspect that makes a cash balance plan appealing to a small business owner, especially one who is older, is the high contribution levels that increase as you get older. The high contribution limits also offer large tax deductions and, for those who have not been able to put away as much retirement savings, the cash balance plan is a great way to catch up. 

Cash balance plans allow for employers to make contributions on their behalf, as well as on behalf of the employees. This is where coordination with your CPA, financial advisor and retirement plan administrator can really pay off.

In our planning for the use of cash balance plans, one of the most heavily weighted factors we use is how much of the contribution is going to the owners. We generally like to see 70 percent of the contribution going to the owners but this can be adjusted based on other goals. So, if a company was eligible to make $100,000 cash balance contribution, we would like to see at least 70 percent go to the owners’ accounts.

Unlike a contribution plan, a defined benefit plan generally provides little or no investment risk for the plan participant. He or she is not impacted by variabilities in the stock market, which adds to the plan’s attractiveness.

Much like in a 401(k) plan, each participant has his or her own account and can actually use the cash balance plan in conjunction with a 401(k) plan. When or if a participant leaves a company, the participant will not lose the amount that has been invested, as long as the participant is vested in the benefit. Upon retirement, participants can take the money as a monthly annuity or roll it over to an IRA.

This article was intended to provide a very broad overview of cash balance plans. If you would like to discuss further please feel free to give us a call and we would be glad to review your situation with you!

Chad Wouters, CPA joined Earney & Company in December 2006 and became the tax partner in November 2013. With an emphasis on strategy and planning, Chad works with his clients all year to ensure the most efficient tax strategies are put into place.  Earney & Company, L.L.P.  is a CPA firm that handles tax compliance, consulting and planning as well as audit and other assurance services.  For more information please visit www.earneynet.com or call (910) 256-9995.  Chad can also be reached at [email protected].


 

Ecolarge
Ico insights

INSIGHTS

SPONSORS' CONTENT
Mcwhorter 0005

The Coastal Corridor is Helping Wilmington Startups With Connected Devices for Life Sciences Industry

Heather McWhorter - UNCW Center for Innovation and Entrepreneurship
Burrus rob headshot 300x300

Spreading Wings for Flight: 2nd Annual Trade Show Highlights the Ingenuity of UNCW Business Students

Robert Burrus - Cameron School of Business - UNC-Wilmington
Chris 16239425

‘Creative,’ An Adjective To Describe Your Accountant?!

Chris Capone - Capone & Associates

Trending News

Conservation Group Signs $8M Deal To Buy The Point On Topsail Island

Audrey Elsberry - Mar 26, 2024

Rezoning Could Bring 123 Townhomes To Growing Leland Corridor

Emma Dill - Mar 25, 2024

N.C. Ports Officials React To Baltimore Bridge Collapse

Audrey Elsberry - Mar 26, 2024

Engineering Firm Hires Four Employees

Staff Reports - Mar 26, 2024

National Organization Bestows Top Award On Cape Fear Professional Women In Building

Staff Reports - Mar 26, 2024

In The Current Issue

Park Progress

The planning for Pender Commerce Park began in the early 2000s when the county wanted to create an economic driver on its largely rural west...


Hacking Cyberdefense Shortage

A shortage of cybersecurity professionals influenced professor Ulku Clark and her team to slowly evolve UNCW’s offerings to now include eigh...


Berries, A Battlefield And More In Pender

The N.C. Blueberry Festival, founded in 2003, is one of several events in Pender County that have drawn more attention over the years....

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2023 Power Breakfast: Major Developments