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Cash Balance Pension Plans

Are you a successful business owner or professional service provider who has the problem of paying a lot in taxes because you are a strong earner?  Do you feel like your 401(k) plan contributions are not enough and would like to do more?  Perhaps a cash balance plan might be a viable solution for you, either as a sole business owner or a business owner that has employees. 

What is it?

A cash balance plan is a qualified retirement plan that can be adopted as a stand-alone retirement savings solution or complement or supplement an existing retirement plan like your typical 401(k) plan.  It can be described as a “hybrid” between a defined contribution plan, where the employee bears investment risk, and a defined benefit plan, where the employer bears investment risk, in that cash balance plan participants’ account balances will grow annually based on the employer’s actual contribution as well as a guaranteed interest credit.    

Potential Contribution Limits

Cash balance plans consist of pooled investments and the scope of the underlying investment options can extend beyond ordinary 401(k) plan investments and is generally not as limited or restrictive.  The primary objective of a cash balance plan is to allow participants to save for retirement while achieving a potential maximum tax deduction, which is dependent upon age as illustrated in this chart for 2023:

Cash Balance Contribution Limits 2023

Who is it for?

Based on the chart above and the fact that this type of retirement plan is geared towards those who generate higher incomes and have sufficient excess disposable income to be able to defer it, the best candidates for cash balance plans tend to be:

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  • Those seeking a tax deduction of $50,000 or more and earn $250,000 or more per year.

  • Highly profitable businesses of all types and sizes, including family owned or closely held.

  • Professional services, including CPA and law firms, medical and dental practices, engineering and consulting firms, etc.

  • Business owners closer to retirement who want or need to condense and accelerate their retirement savings into a very short period.

Cash Balance Plan Business

Effects of Investment Earnings

The pooled investment performance of a cash balance plan must be assessed annually as it determines future employer contributions.  If the plan’s investment earnings exceed the guaranteed rate, the excess will be used to reduce future employer contributions but will not affect the amount credited to participants’ accounts.  The opposite or inverse fact pattern or scenario holds true as well. 

Learn More

If you believe you and your business fit the criteria above and you want to emphasize and concentrate on tax efficient savings, please contact us for more information as we would like the opportunity to answer your questions and help you design and implement a plan.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. 

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Nashional Financial consists of Nashional Independent Investment Management LLC (“RIA Firm”) and Nashional Independent Insurance Agency LLC. Investment Advisory Services are offered through Nashional Independent Investment Management LLC, a registered investment adviser. Nashional Independent Investment Management LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Nashional Independent Investment Management LLC's web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Nashional Independent Investment Management LLC's website on the Internet should not be construed by any consumer and/or prospective client as Nashional Independent Investment Management LLC's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Nashional Independent Investment Management LLC with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Nashional Independent Investment Management LLC, please contact the state securities regulators for those states in which Nashional Independent Investment Management LLC maintains a registration filing. A copy of Nashional Independent Investment Management LLC's current written disclosure statement discussing Nashional Independent Investment Management LLC's business operations, services, and fees is available at the SEC's investment adviser public information website – www.adviserinfo.sec.gov or from Nashional Independent Investment Management LLC upon written request. Nashional Independent Investment Management LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Nashional Independent Investment Management LLC's web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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