Cash balance plans are a type of defined contribution retirement plan that uses both employer and employee contributions. They were originally created to help lower-paid employees save for retirement because they’re easier to afford on a regular basis. The idea is that the money invested in Boca Raton cash balance plans accumulate until it reaches a predetermined threshold, which you can choose. At this point, it’s rolled over into an IRA or other tax-advantaged retirement account.
Cash balance plans promise a balance of growth and shorter-term rewards. Employees with a cash balance plan have a set amount of money withheld from their paychecks, which is then invested on their behalf. These funds can grow tax-deferred for a period of time before the money is taxed as ordinary income when it’s withdrawn. This gives employees a greater chance at benefiting from long-term growth potential.
Let us now see into four main benefits of cash balance plans.
- Cash balance plans can be combined with other plans and tailored for individual needs
A cash balance plan (sometimes called a cash balance retirement plan) is an excellent way to create a customized retirement plan. Cash balance plans can be combined with other plans like 401(k)s and IRAs, and they provide retirees with the flexibility to take distributions in lump sums or installments. It’s also possible for individuals to contribute to the account and save money for future needs like healthcare and disability insurance.
- Significant tax benefits
Cash balance plans can significantly reduce the amount of taxes that a company pays each year, and the flexibility in setting up these plans is what makes them such an attractive way to save money. The benefits of cash balance plans go beyond tax savings; the plan also provides a retirement plan for all employees. A company can save billions in taxes annually by embracing this type of plan.
- Higher maximum contribution allowance
Cash Balance Plans have a higher maximum contribution allowance than traditional 401(k) plans. A Cash Balance Plan, also known as the “frozen” or “mark to market” plan, is a hybrid plan that combines features of both defined benefit and defined contribution programs. The maximum contribution allowance for Cash Balance Plans is $17,500, as opposed to $18,500 for traditional 401(k)s.
- Approved by IRS
In the past few years, cash balance plans have been a hot topic within the corporate world. The plans are seen as an attractive way for companies to save on taxes, especially if the company is in a lower tax bracket. IRL has recently approved cash balance plans and has made them available to its own employees.