subject: Is A Cash Balance Plan Right For Your Business? [print this page] Small business owners may want to sponsor cash balance plans or other retirement savings plans for their employees to help these workers accumulate enough money for retirement. However, your choice of savings plan depends on what you're willing to contribute and how much you earn. Here are some considerations you need to take into account before opting for cash balance or hybrid plans for your small business:
Does your company earn consistently? Cash balance plans, much like pension plans that give defined benefits, require a steady flow of cash and stable profits. If your company makes good money on a regular basis, a hybrid plan may be the best retirement savings option for your employees because of the necessary contributions.
Do you want to make bigger contributions than what profit-sharing plans and 401Ks allow before taxes? Workers in higher income brackets can reach the contribution limits of other retirement savings plans easily, which is something that's less of a concern with the comparatively higher limits cash balance plans allow. Also, a successful company that needs better tax deductions may benefit from these types of retirement plans because it permits faster and larger savings and bigger tax deductions.
Businesses that use the hybrid plan typically include those that provide professional services, such as small businesses with multiple owners, CPA and law firms, and medical groups that require more leeway when it comes to contribution limits for their workers. Hybrid plans can also help you against creditor claims and help you protect your money and business assets, as well as give you the flexibility to vary contribution amounts among your employees or terminate or freeze contributions if needed. If you're thinking about setting up cash balance plans for your small business, you can fund it next year, although you'll have to establish it before this year ends.
