Cash Balance Plan

Defined Benefit Plan for Highly Compensated Business Owners

A cash balance plan is a type of Defined Benefit Plan which allows for individuals to make very high tax-deferred contributions to their retirement and usually for self-employed or small business owners over who are looking to make large retirement plan contributions.

Cash balance plans do require a Third-Party Administrator (TPA) and a plan actuary that will administer the plan and make IRS filings.

We recommend that your CPA or tax advisor work directly with the Third-Party Administrator (TPA) to make sure you are following all the IRS codes regarding the cash balance defined benefit plan.

Cash Balance Plans allow for the highest contribution limits in the IRS code, however, there are high costs and administrative requirements which require hiring a Third-Party Administrator (TPA).

  • Actuarial calculations provided by a Third-Party Administrator (TPA)
  • Requires annual funding based on the Third-Party Administrator (TPA) and actuarial calculations
  • IRS filing fees
  • Form 5500 with a schedule SB annual filing with IRS

The cash balance plan is entirely funded by the employer and the contribution formula for participants is clearly defined by the plan adoption agreement. Below are the (2) ways in which the cash balance plan is calculated.

Pay credit

The formula that is a percentage of the participants compensation that is credited to the participants cash balance plan each year.

Interest Credit

Fixed or variable formula defined in the plan adoption agreement that is linked to a particular index, such as the one-year treasury bill or 30-year Treasury Note.

Note - *The investment risks are sole borne by the employer, the increases and decreases of the investments inside of the cash balance plan do not directly affect the yearly participant benefit amounts.

Distribution Rules

When a participant becomes eligible to receive their cash balance benefits either in the form of retirement or the early exception rules, the benefits are received in the form of an account balance. The participant can then decide at that time, if they would like to take a life-time annuity based on the account balance or if they would like to receive a lump-sum for the entire amount of the cash balance plan.

One of the main benefits of the cash balance plan is that the participant is eligible to receive the total amount of the account balance and roll in into an Individual IRA or even into an employer retirement plan, this is most common when it comes to cash balance plan distributions.

2022 Contribution Limits for: 401(k), Profit Sharing & Cash Balance

 

Age        

401(k)             

 401(k) w/ Profit Sharing            

Cash Balance                  

 Total             

70

$27,000

$67,500

$366,000

$433,500

69

$27,000

$67,500

$351,000

$418,500

68

$27,000

$67,500

$336,000

$403,500

67

$27,000

$67,500

$322,000

$389,500

66

$27,000

$67,500

$308,000

$375,500

65

$27,000

$67,500

$295,000

$362,500

64

$27,000

$67,500

$302,000

$369,500

63

$27,000

$67,500

$308,000

$375,500

62

$27,000

$67,500

$315,000

$382,500

61

$27,000

$67,500

$299,000

$366,500

60

$27,000

$67,500

$285,000

$352,500

59

$27,000

$67,500

$271,000

$338,500

58

$27,000

$67,500

$258,000

$325,500

57

$27,000

$67,500

$245,000

$312,500

56

$27,000

$67,500

$233,000

$300,500

55

$27,000

$67,500

$222,000

$289,500

54

$27,000

$67,500

$211,000

$278,500

53

$27,000

$67,500

$201,000

$268,500

52

$27,000

$67,500

$191,000

$258,500

51

$27,000

$67,500

$182,000

$249,500

50

$27,000

$67,500

$173,000

$240,500

49

$20,500

$61,000

$164,000

$225,000

48

$20,500

$61,000

$156,000

$217,000

47

$20,500

$61,000

$149,000

$210,000

46

$20,500

$61,000

$142,000

$203,000

45

$20,500

$61,000

$135,000

$196,000

44

$20,500

$61,000

$128,000

$189,000

43

$20,500

$61,000

$122,000

$183,000

42

$20,500

$61,000

$116,000

$177,000

41

$20,500

$61,000

$110,000

$171,000

40

$20,500

$61,000

$105,000

$166,000

39

$20,500

$61,000

$100,000

$161,000

38

$20,500

$61,000

$95,000

$156,000

37

$20,500

$61,000

$90,000

$151,000

36

$20,500

$61,000

$86,000

$147,000

35

$20,500

$61,000

$82,000

$143,000

34

$20,500

$61,000

$78,000

$139,000

33

$20,500

$61,000

$74,000

$135,000

32

$20,500

$61,000

$70,000

$131,000

31

$20,500

$61,000

$67,000

$128,000

30

$20,500

$61,000

$64,000

$125,00

 

**Cash Balance contribution above are based on IRS maximum limits; note that actual Cash Balance contributions may be less depending on the cash balance defined benefit plans provisions as outlined in the Cash Balance plan adoption document. **