Cash Balance – Profitable business – RAI - Retirement

The Cash Balance Retirement Plan Solution: Accelerate Savings and Greatly Reduce Taxes Many professionals find themselves with a retirement plan dilemma. Financial experts predict you will need 80% of your current income to maintain your standard of living upon retirement. Without a properly designed retirement plan in place, owners and employees alike may not be able to maintain their lifestyle at retirement. If you find yourself in this situation, and would also like a huge tax deduction, adding a Cash Balance Plan may be the solution. However, a Cash Balance Plan must be st established by December 31 to take advantage of tax deduction in 2013, although the plan doesn’t need to be funded until the tax return is due.

Cash Balance Plans provide participants an annual contribution limit sometimes over $250,000 (based on age). Compared to the limit for a 401(k)/Profit Sharing plan of $51,000 ($56,500 if age 50 or older). The contributions are tax deductible and it is possible to accumulate a retirement benefit of up to $2.5 million in 10 years! Furthermore, the nature of Cash Balance plans insulates them from market volatility and risk. The investment goal for a Cash Balance Plan is to protect the tax deduction rather than maximize returns. In a Cash Balance Plan, each participant has a hypothetical account which is credited with annual pay credits (the contribution) and interest credits (typically five percent). The participant does not have any investment risk. When paired with a 401(k)/profit sharing plan, the two are combined for nondiscrimination testing. The Cash Balance combination arrangement allows maximization of benefits to owners and other “key” participants while keeping employee contribution costs relatively low; around 6.5 percent to 10.5 percent of compensation. Cash Balance Plans are in the “defined benefit” family but are a HYBRID. Each year, an enrolled actuary must provide the funding requirement range to the plan sponsor. Employers can designate different contribution amounts for various participants which allows for greater flexibility. Once participants retire or terminate employment, they are eligible to receive the vested portion of their account balance. Cash Balance accounts are portable and can be rolled over to an IRA where no taxes are due until age 701/2. Cash Balance Plans are best for businesses that: Have professionals with income exceeding $150,000. Have professionals who have a contribution goal of $50,000 or more. Have stable income and 25 or fewer employees. Have highly compensated employees who are older than the non‐highly compensated employees. If you are concerned about the amount of taxes you’ll have to pay on this year’s income, or if you are concerned that you are late to the game in saving for retirement, consider the addition of a Cash Balance Plan to your company. The combination of your existing or start‐up 401(k)/profit sharing plan with a Cash Balance Plan can provide a tremendous opportunity to reduce taxable income and significantly increase your retirement nest egg. Retirement Administration, Inc. 650‐961‐5500 phone www.retirementadmin.com...

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