Register for Client Education Seminar. Learn More »

Important Things You Need to Know About Cash Balance Plans

by AOG Wealth Management

A cash balance plan is a type of pension plan in which the employer credits a proportion of the employee’s annual salary plus interest. There are many companies that offer this plan as part of their benefits package. Read on as AOG Wealth Management, a Great Falls, VA wealth management advisor, explains what you need to know about cash balance plans.

Cash Balance Plans

Understanding Cash Balance Plans

Under a cash balance plan, you’ll receive a benefit based on your total years of service and your salary over the past few years leading up to your retirement. Cash balance plans have liberal contribution limits, which increase as you age. With a 401(k), the maximum contribution per year is $57,500, but with a cash balance plan you can contribute over $200,000 per year pre-tax if you’re over the age of 60.

Another advantage of cash balance plans is portability. Unlike a traditional pension, you will get to take the money in the plan with you if you leave your job. This will allow you to roll the funds into a personal IRA. With proper financial planning, you’ll have the opportunity to build a healthy nest egg from the cash balance plan from your previous company, while taking advantage of the benefits from your new company.

Cash Balance Plan Payout Options

Cash balance plans typically come with two kinds of payouts. You can receive either a lump sum or guaranteed monthly payouts in the form of a life annuity. Anti-discrimination laws and IRS Rules that govern company-sponsored retirement plans usually make annuities from these plans better than an annuity that you can purchase on your own.

A cash balance plan alone is not enough to provide financial security during your retirement years. You will need additional income if you want to retire comfortably. As the leading financial advisor in our area, we can help you with your financial objectives. We provide personalized solutions to our clients and we complete rigorous, on-site due diligence on all prospective investments. We serve many areas including Reston, VA and Washington, DC. Call us at (866) 993-0203 to learn more about cash balance plans. You can also ask for a complimentary consultation.

Category: Wealth Management