"As a CPA, I appreciate the unique expertise EGPS brings to DB/DC plan designs. They share our core philosophy of providing creative and practical solutions to meet our clients' goals."
A small law practice has been happy with their 401k, but the partners are getting older and would like to speed up their retirement savings. Because of the limits on the 401k plan, they are wondering how they can put away more.
After reviewing their needs, and their satisfaction with their 401k plan, EGPS recommended a Cash Balance addition to their current plan. What does this look like?
| Name: | Age: | Compensation (IRS Testing): | 401(k) | Profit Sharing: | Cash Balance: | Total Contribution: |
|---|---|---|---|---|---|---|
| Partner 1 | 61 | $260,000 | $23,000 | $34,500 | $229,000 | $286,500 |
| Partner 2 | 57 | $260,000 | $23,000 | $34,500 | $185,000 | $242,500 |
| Partner 3 | 52 | $260,000 | $23,000 | $34,500 | $141,000 | $198,500 |
| Partner 4 | 50 | $260,000 | $23,000 | $34,500 | $0 | $57,000 |
| Partner 5 | 50 | $260,000 | $23,000 | $34,500 | $127,000 | $184,500 |
| Partner 6 | 48 | $260,000 | $17,500 | $34,500 | $114,000 | $166,000 |
| Partner 7 | 40 | $260,000 | $17,500 | $34,500 | $74,000 | $126,000 |
| Subtotals: | $1,820,000 | $150,000 | $241,500 | $870,000 | $1,261,500 | |
| 4 Associate Attorneys | – | $460,000 | n/a* | $0 | $0 | $0 |
| 15 Other Employees | – | $9000,000 | n/a* | $67,500 | $15,000 | $82,500 |
| Total: | $3,180,000 | $150,000 | $309,000 | $885,000 | $1,344,000 |
Adding a cash balance plan allows them to keep their 401k, but significantly increases the amount they can put away each year. The older partners feel more secure in their retirement savings. The employees get to keep the independence of maintaining their own 401k investments, but have the security of an annual credit from the cash balance plan. The owners also receive significant tax relief from the higher contribution limits of the cash balance plan.
36 year-old Kelsey started her own consulting firm, and after a few years of growing her business, considered her options for aggressively expanding her retirement savings. With the help of her financial advisor, she sought advice from EGPS. How much could she put away?
| Owner: | Salary: | Defined Benefit: | 401(k) Contribution: | Profit Sharing Contribution: | Total Contributions: |
|---|---|---|---|---|---|
| Kelsey | $265,000 | $101,984 | $18,000 | $15,900 | $135,884 |
Even if her salary remained flat, if she maintained the contribution she is making, her retirement account assets could be over 2.5 million by the time she is 62. For more information about projected benefits, see our calculator.
A food import business owned by a married couple has put off saving for retirement while using their capital to start their own business. Now that their business has been successful for several years, they want to start saving aggressively for retirement. They have always managed a 401k, but would like to start playing catch-up for the earlier years when they were growing their business.
Implementing a cash balance plan allows them to take advantage of their increased profits and grow their retirement plan.
| Partner: | Age: | Compensation: | 401(k): | Safe Harbor: | Employer: | Cash Balance: | Total Contribution: | % of Compensation: | % of Total: |
|---|---|---|---|---|---|---|---|---|---|
| Leslie | 54 | $28,000 | $24,000 | $0 | $0 | $0 | $0 | 0% | 0% |
| Ron | 55 | $265,000 | $24,000 | $0 | $35,000 | $184,463 | $219,463 | 82.82% | 91.11% |
| April | 34 | $58,001 | $1,800 | $1,740 | $3,770 | $1,160 | $6,670 | 11.5% | 2.77% |
| Andy | 34 | $43,000 | $0 | $1,290 | $2,795 | $860 | $4,945 | 11.5% | 2.05% |
| Donna | 51 | $59,001 | $1,800 | $1,770 | $2,655 | $0 | $4,425 | 7.5% | 1.84% |
| Gary | 58 | $71,501 | $0 | $2,145 | $3,218 | $0 | $4,425 | 7.5% | 2.23% |
| Total: | – | $534,503 | $51,600 | $6,945 | $47,438 | $186,483 | $240,866 | – | – |
The safe harbor portion of their plan means their plan automatically passes any cross-testing, so they don’t have to worry about an audit every year. The safe harbor portion means that everyone receives a 3% automatic contribution to their 401k, so the employer feels secure about the fairness in the plan. The high percent of total also means that the employer receives the majority of the plan contribution.
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