As a business owner, deciding whether to add a Cash Balance Plan alongside your existing 401(k) requires careful consideration of various factors. Here are some key points to help you make an informed decision:

Retirement Goals: Consider your personal retirement goals and how much you want to save for retirement. A Cash Balance Plan can allow for significant tax-advantaged contributions above the 401(k) annual limits, especially for business owners with high incomes.

Age and Employee Demographics: A Cash Balance Plan might be advantageous if you are an older business owner with a significant income and a relatively young workforce. The plan can be structured to provide larger contributions for older employees while still offering benefits to younger employees through the 401(k).

Cash Flow and Budget: Setting up and maintaining a Cash Balance Plan is expensive. Assess your company’s cash flow and budget to determine if you can comfortably handle these additional expenses.

Employee Benefits: A Cash Balance Plan can be a powerful tool for attracting and retaining key employees, especially those who value a stable and predictable retirement benefit. A 401(k) and a Cash Balance Plan can enhance your employee benefits package.

Contribution Flexibility: Evaluate how much you contribute to your 401(k) plan and how much more you could contribute by adding a Cash Balance Plan. The combined contribution limits can be substantial, but you must ensure you can consistently maintain these contributions.

Long-Term Commitment: Cash Balance Plans are designed for long-term savings. If you anticipate significant fluctuations in your company’s financial situation or plan to sell the business in the near future, a Cash Balance Plan might not be the best fit.

A Cash Balance Plan can be a valuable addition to your existing 401(k) plan, particularly if you are a high-income business owner looking to increase your retirement savings while enjoying additional business tax advantages. However, the decision should be based on a thorough assessment of your company’s financial situation, your retirement goals, and the needs of your employees. Professional guidance can be crucial in structuring a plan that aligns with your objectives and ensures compliance with relevant regulations.

Please feel free to contact Actuaries Unlimited, Inc for a no-obligation consultation.