Cash Balance Plans: An Introduction

Updated : Oct 23, 2019 in Articles

Cash Balance Plans: An Introduction


What if you could save over $200,000
extra dollars this year in 2019 and get a tax deduction for it. In today’s video, I’m talking about what I think is the
best kept secret in the retirement plan industry, the cash balance plan. These plans have absolutely exploded in
popularity since about 2006 when the US government, Uncle Sam clarified the rules on these
plans and with the tax cuts and jobs act especially, they’re even more
compelling. So in today’s video, I’m going to talk about that sort
of cash balance plans one-on-one. I’m going to give you an overview so
that you can understand what these plans are, how they work, and who
they are appropriate. Fourth, you can decide if this type
of plan is right for you. Hi there. My name is Ashley Micciche, CEO of True North Retirement Advisors
where we specialize in retirement and exit planning for business owners. CASH BALANCE PLANS – AN INTRODUCTION okay, so let’s talk about the
cash balance plan. Now, honestly, I go to a lot of clients.
First of all, they, most clients who are business owners, they’ve never heard of
a cash balance plan. Their CPA is not telling them about this. Their financial advisor they had
before wasn’t telling them about this. Nobody is talking about the cash
balance plan. It’s sort of this, um, I don’t know. It’s a best
kept secret they had. They have not been around for nearly
as long as the 401k plan. And frankly, I think a lot of people just
start keeping up with them. A lot of industry professionals who work, who don’t want to specialize or have
a background in 401k or profit sharing plans have absolutely no clue what
these plans are. And as a result, a lot of businesses haven’t really adopted
them because they just haven’t been aware of the opportunity. But
the opportunity is incredible. If you are a successful business owner, you’re over 50 your
business is profitable, you pay way too much in taxes, you want
to reduce your tax bill. By the way, that’s the number one reason why a
business owner will adopt these plans is because of the significant tax benefits, which I’m going to talk about in more
detail in the video two weeks from today. So come on back to that video, which
is part two of this four part series. There’s the cash balance plan allows
you to sort of kill two birds with one stone. It allows you to accelerate
your retirement savings
way above and beyond what you could do in the 401k plan,
in the profit sharing plan. And it allows you to get a significant
tax deduction for those higher savings amounts. So here’s how it works. You, uh, a cash balance plan is a
hybrid retirement plan. So it has elements of defined
contribution plans, which are, um, 401k profit sharing plans. And then it also has elements of
pension plans or defined benefit plans. And it kind of straddles
the line between the two. And the reason why this is important
is because a cash balance plan is a qualified retirement plan. And because
it’s a qualified retirement plan, there are certain rules
and restrictions with it. But as long as you follow the rules, you received a absolutely massive
tax deduction for doing so. You want to implement a cash balance
plan unless you already had a 401k and a profit sharing plan. So
assuming those two are in place, you’re going to add a cash balance, but it doesn’t replace the
other plan you added to the mix. And so you can see on the chart here
that after you maximize your 401k contributions matching dollars and
after you maximize the profit sharing contribution, you still want to contribute more and
you still want a big tax deduction. Enter the cash balance plan. And
you can see here in the chart, it’s based on the contributions that
you can make to the cash balance plan or based on your age. So the older you
are, the more you can contribute. But look at the additional amount of
money that you can put in to the your retirement accounts for that given year
and get a tax deduction so you can see what, how massive those tax
savings potentially are. If you’re fully utilizing your 401k, your profit sharing plan and your cash
balance plan all in conjunction with each other. And this is where the
incredible opportunity lies, is that when you sort of bring together
all three of these plans and maximize those contributions, you can get a
tremendous amount of extra dollars. Like you could squeeze 20 or 30 years
of retirement savings if you’re behind, especially, you could squeeze that into like five
or 10 years when you utilize a cash both plan and you get a massive
deduction for doing that. Okay. Now a couple of other details
because it has some elements of a defined contribution plan. There are required
annual employer contributions. So what this means is that you want
to make sure that if you’re going to implement a cash balance plan, that
you intend to maintain the balance, the cash balance plan for at least
several years and that your business has enough cashflow and it’s profitable
and successful enough. Um, and it’s not highly cyclical. By the
way. I also want to mention with this, you do not have to do the maximum that I
outlined in the chart that I showed you earlier. You don’t have to maximize
the contribution every
year then not that you can contribute, can and and will vary. Okay. The other thing that’s really cool is
that these plans are portable because if you’re the business owner and you retire, you’re not having to take like an annual
income or a monthly income stream. You’re not stuck with that. You can roll the money over into your
IRA account and then you can do whatever you want with it at that point.
And then the last thing is, is this is getting a little
bit into the weeds here, but I just wanted to mention that there
are certain requirements for how these accounts are invested. So they tend
to be more conservative and you know, an ideal target rate of return is
somewhere in like the three to 6% range. And so it’s just a way it’s, it also allows us diversification because
you might have these other investments over here where they’re invested in
the stock market and you’re trying to maximize the growth on that, but the goal with the a cash balance plan
is to hit a targeted targeted rate of return every year, which is
in the mid single digits. Questions? Do you have questions like
cash balance plan and you’re like, this is a brand new thing. I’ve
never heard of that before. I don’t know if it’s right for me. There’s actually five questions that you
would need to answer in the affirmative like, yes, this is, this is my situation.
Yes, that applies to me. Yes, yes, yes. In order to decide if the cash
balance plan makes sense for you. Now and one of these later
videos in this series, I’m going to outline what
those five questions are, but for now if you have questions, do you want to know what the cash
balance plan is right for you in about 15 minutes on the phone and I can ask you
several questions and we can have a conversation and see if a cash
block plan makes sense for you. If you should move forward with the idea
and explore it further or if you should say, you know what,
this isn’t right for me. So Click on the link below this video to
schedule a free 15 minute call with me with me, not a robot. It’s with me to see if the cash
call the plan is right for you. Thank you so much for watching. My Name’s Ashley Micciche please like
comment and subscribe to this channel. We put out new videos every single week
geared towards small business owners who are planning for their exit and
planning for their retirement from their business. Thank you again so much for
watching and I will see you next week.

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