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Retirement Plans

Tad Majerek | Thursday, December 31st, 2009

Is it possible to put more away in your retirement plan.

Yes, with the Cash Balance Plan.  The CBP is a hybrid of a traditional defined benefit plan and a 401(k) plan.  This combination is often a good fit for professional service organizations, such as doctors groups,  law firms, consultants and high net worth business owners of closely held companies which have demonstrated a consistent profit pattern and will continue to do so for several more years.  The Cash Balance Plan offers an enhanced retirement vehicle which allows for accelerated retirement savings, while taking advantage of potentially tremendous tax benefits.  Depending on the situation as much as $200,000 per individual.

An increasing number of highly compensated individuals are finding that contributions made to their 401(k) and profit sharing accounts have reached the maximum allowable amounts. However, now those highly compensated individuals can increase their contributions through the increasingly popular Cash Balance Plan. The main  retirement plan in the United States, 401(k) plans allow participants to contribute up to $21,500 for 2009, depending on the participant’s age. A profit-sharing plan allows employers to contribute another $30,500 on behalf of the participant.  However, once the annual maximum contribution has been reached ($54,500 for those 50 years of age and over or $49,000 for those under 50 years of age), then no further contributions can be made for that participant on a pre-tax basis.  On the other hand, a Cash Balance Plan contribution can be as much as $200,000 per year, which varies by age. For individuals making in excess of $250,000 per year and who have a need for additional tax deductions, a Cash Balance Plan might provides a welcome respite from the low retirement plan contribution levels available through a 401(k) profit sharing plan.

The cash balance plan also has the benefits of creditor-proof asset protection and Benefit protection provided by the Pension Benefit Guaranty Corporation (PBGC).

The plan comes with some hurdles but could be well worth investigating.

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