Cash Balance Plan and Benefit Bonus Plan

Defined Benefit Plans

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The Cash Balance Plan

  • Small to mid-size business owner
  • Interested in tax deduction
  • Would like to offer more incentive to employees
  • Does NOT require to have employees to pursue
  • Max funding is $2.4mm

This strategy is for business owners that would like to defer some of their earnings to their own retirement plan, with higher limitations than an IRA or 401-K. Their employees can be tied within this plan. This, of course, provides an incentive to the business and overall morale. When employees retire, they will receive their determined defined benefit in one lump sum. Strategy 1 is a great tax reduction tool for small business owners. It allows them to save for their retirement while also receiving a tax deduction. There is a $2.4MM limit to the plan. You will receive a dollar for dollar tax deduction on the monies that are contributed. Furthermore, the money that is contributed will be invested.


WebReferenceBoard3_Def_Benefits2.pngThe Benefit Focus Plan

  • Business owners that would like & qualify for a larger tax deduction than Strategy 1
  • Current retirement plan is fully funded
  • Privately held business
  • Prefer to defer taxes
  • Must be insurable
  • Goal: Contribute to own plan, contributions are 100% tax deductible

Strategy 2 is similar, in a sense, to Strategy 1. Strategy 2 allows for higher contributions, higher tax deductions and allows the individuals involved in the plan to continue receiving benefits after they have retired. The “sweet spot” for this plan are business owners that can afford to put more than $2.4MM of their monies away, overtime. As you know, with a larger contribution every year the business owner will receive a higher tax deduction. Creditor protection is achieved by the participants in the plan as they don’t actually own their benefit. Life insurance is a requirement for this plan. Unlike Strategy 1, there is a monthly benefit that will be paid out every year; not a lump sum.

Although this is one solution for clients, more often than not Premium Finance is a more suitable option for clients.