Cash Balance Plan for Tax Savings

Cash Benefit plan save substantial amount of taxes. If you only have a 401k Plan, or profit-sharing plan, you may not be getting the maximum allowable contribution. For example, in 401k PS plan, the maximum you can contribute is $60,000 (Age over 60) vs in a Cash Balance Plan, you can contribute as high as $ $264,000 (chart below). If you are in a 40% tax bracket, you will be letting go $105,600 tax savings if you contribute only to a 401k PS plan. You can use the following sheet as a calculation for different types of account and potential tax savings: Contribution limits in cash balance plan are age-based, with the older a participant is the higher the amount, as an older participant has fewer years to reach the $2.6 million lump sum amount that is allowed for the plan. This amount is subject to IRS limits and will be calculated via a formula in the plan documents. There are deadlines to set up ERISA plans for year 2020. Everyone’s situation is unique, but it is important to speak to a fiduciary financial advisor who can help you determine which retirement plan is suitable for you.