Dentaltown November 2017 - 91

Balance
Books
Your

A cash balance plan could help you reduce taxes
and boost your retirement fund
For the dental practice owner, the retirement marketplace can be a crowded space, with many options and
considerations to navigate. Some of these considerations include annual limits on retirement contributions, rate
of return, tax deductibility and tax-free income. Determining key differences and trade-offs between retirement
planning offerings can pose a particularly daunting challenge.
What if a dental practice owner could come up with a retirement planning strategy that allowed him or her
to boost annual retirement contributions while slashing taxes? And, at the same time, deliver a predictable rate
of return plus the possibility to structure a tax-free income stream? All of this is possible thanks to the powerful
blend of life insurance and investment products that form a cash balance plan-a type of defined benefit plan.

Cash balance plan vs. traditional pension

How it works

A cash balance plan is a type of defined benefit plan,
which guarantees a specified benefit or payout based on
a predetermined formula. In a typical pension fund,
such as a 401(k) plan, the amount of payouts depends
on the return of the funds invested.
With a cash balance plan, the formula for calculating
the plan participant's contribution is known ahead
of time, and the plan guarantees a specific benefit or
payout upon retirement.
According to an article by Kiplinger.com senior editor
Eleanor Laise, "Many older business owners are turning
to these plans to turbocharge their retirement savings.
Cash balance plans have generous contribution limits that
increase with age. People 60 and older can sock away well
over $200,000 annually in pretax contributions. In
401(k)s, total employer and employee contributions
for those 50 and older are limited to $57,500."
Kiplinger is a publisher of business forecasts
and personal financial advice.

The retirement-building advantages of a cash
balance plan start with potentially larger tax deductions,
thanks to higher allowable contribution limits. A second
advantage is tax-deferred growth of plan contributions.
A triple retirement win can be achieved when the life
insurance component of the plan is structured to produce
a future annual stream of tax-free income from the
policy's cash value.
Unlike a 401(k) plan, which relies on individual
contributions from each employee and can increase or
decrease in value based on performance of investment
vehicles in the plan, cash balance plan contributions
are funded entirely from the owner(s) of the business.
Performance of investment products within the plan is
not of great concern because there is a predetermined
rate (usually 5-6 percent.)
How does a cash balance plan supercharge retirement
savings? The first way is through the annual contribution amount, which can be far greater than 401(k)

dentaltown.com \\ NOVEMBER 2017

http://www.Kiplinger.com http://www.dentaltown.com

Table of Contents for the Digital Edition of Dentaltown November 2017