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Who is the Perfect Candidate for a Cash Balance Plan?

by Caldwell Trust

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As you determine which quality retirement plan option will work best for your company, it is important to consider how each will suit your business status and needs. In your search, you will come across cash balance plans, which offer numerous benefits to employers. This type of plan is well worth the consideration, but it is not a one-size-fits-all solution. You can use this guide to see if you might be a good candidate for a cash balance plan – and learn how to take the first step in getting set up.

Related Blog: Your Frequently Asked Questions About Cash Balance Plans Answered


1. Desire to Contribute More Than $50,000 Per Year to Retirement

Cash balance plans have a much higher contribution limit than traditional retirement options. These traditional accounts tend to top off at $50,000. If you want to contribute more each year and build your nest egg quickly, then cash balance plans are a great way to do that. Depending on your age, you can contribute up to a max of $100,000 to $260,000 a year to boost your retirement savings fast.


2. Willing to Make Contributions to Employee Accounts

Cash balance plans require an employer contribution, and you must have the ability to make contributions on a regular basis. Each eligible employee on your roster will receive a benefit to prepare them for their retirement years. With cash balance plans, employers typically contribute between 5% and 7.5% per employee at the minimum. If you already contribute to a profit sharing or 401(k) plan, you’ll easily adjust to a cash balance arrangement.


3. Consistent, Profitable History

Since you will need to make contributions to your and your employees’ cash balance accounts, your company needs to have a solid history of consistent cash flow and profit. If this is not the case, you might fare better with a traditional retirement plan that involves profit sharing or employee contributions. Otherwise, you will not be able to keep up with the contributions and the account balances will not grow as they should.


4. Relatively Small Company Size

As your company size grows, cash balance plans begin to offer diminishing returns. These plans tend to work best for companies that have 20 or fewer employees. This ensures that you can maximize the contributions going to your employees, especially those who play a key role in your daily operations and business success.


5. Older Than 40 – and Want to Accelerate Savings

If you are older than 40 years of age and are not yet where you need to be with your retirement plan, cash balance plans can help you accelerate your savings. When going with traditional retirement plans instead, it can be difficult to impossible to catch up. Furthermore, at age 40, the contribution limits extend beyond the $100,000 a year mark, making it easier than ever to build a healthy retirement account in a short period of time.


Are You a Good Candidate for a Cash Balance Plan?

If you meet any of the criteria above, it is well worth your time to explore cash balance plans as your retirement option of choice. You can receive help determining if you are a great candidate by working with our team at Caldwell Trust. If you decide to go with cash balance plans for your company, our team of financial experts can also help you design and manage your plan.

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