A cash balance plan may be suitable for business owners that want to accelerate their retirement savings while offering potential tax benefits.
Cash balance plans are often referred to as a “hybrid” retirement plan because it combines some of the features of a defined contribution plan, such as a 401(k) plan, and a defined benefit plan. While a traditional defined benefit plan provides for a specific benefit at retirement (typically a specified monthly payment amount), a cash balance plan provides the benefit at retirement in the form of an account balance.
Participants receive a set percentage of their yearly compensation plus interest charges.
Contribution limits increase with age. Therefore, older business owners seek out these types of plans to accelerate their retirement savings.