[Music]
so today we're gonna talk about what a
cash balance plan actually is cash
balance plans are used for business
owners in a variety of situations but
primarily it's for a business owner that
wants to make a large contribution into
a plan
most everybody have heard of IRAs
obviously you can only put a small
amount fifty five hundred into an IRA
401ks you can do eighteen five plus a
profit-sharing so again nice amounts
that you can put in but for business
owners that want to put a hundred
thousand dollars or whatnot into a plan
it's just not going to work for you with
an IRA or a solo 401k so a cash balance
plan is going to be usually the number
one option for that type of person but
to take a step back what we would
typically look to when I try to explain
what a cash balance plan is is we would
look at the difference between what we
would call a defined contribution plan
and a defined benefit plan now a defined
contribution plan defines how much money
you put into the plan itself whereas
find benefit defines the amount that
comes out of the plan at a later date
IRA s and 401ks are essentially defining
the contribution upfront that is tax
deductible whereas for folks the good
analogy for them is to compare it to
Social Security where work your whole
life and at a retirement age you're able
to take out a certain amount of
contribution excuse me
monthly retirement benefit that you're
gonna get to take out for the rest of
your life that would be a perfect
example of what a defined benefit plan
is so a cash balance plan is in the
defined benefit camp it's technically
that type of plan they do call it a
hybrid plan because it actually states
those benefits as a cash amount as a
hypothetical account balance but it
really is an actuarial calculation
that's based on a future benefit that's
going to come out of the plan itself now
the plan is funded by an annual
contribution by the company itself but
it
grows based on an interest credit that
is allocated to the plan in addition to
any funding that the company makes so
it's going to grow over time until at
some point it would be annuitized or
rolled out into an IRA one of the
important advantages of cash balance
plans though is they're only going to be
for qualified employees in many
situations you're going to have
full-time employees they're gonna be
working greater than a thousand hours a
year or employees that are going to be
under the age of 21 for anybody who's
under the age of 21 you do not have to
contribute into the plan for them
anybody who works less than a thousand
hours does not have to receive a benefit
under the plan so it's really going to
be skewed towards a lot of the full-time
employees and owners of the company for
that reason a cash balance plan is going
to be a great option for folks who want
to get a large amount of money into a
plan and want to make sure they can
supercharge their retirement and also
take advantage of the tax deductions as
well