Business owners can put more money away for retirement with cash balance plans

By Steve Savant

Ash Brokerage Corporation


Business owners are frequently frustrated by the limits on 401(k) plans — what I call K plans and Roth K plans — for owners and key employees. Owners basically get to add 2 percent to the company’s average employee contribution rates for their personal K plan contribution limit.

For example, if the employees as a whole contribute 3 percent of their total wages to the K plan, then the owners and key employees will be able to put about 5 percent into a K plan. The maximum voluntary contribution is $17,000 this year for each and every employee.

Many owners were set back by the bad markets and want to put more money away into tax benefitted plans. So what are their options?

Some relatively new qualified plan rules may allow owners to put about 85 percent of total contributions into their own accounts using a hybrid defined benefit and defined contribution plan. Seek out a qualified retirement plan administration company to help set up one of these plans and to compute the actual contribution if you are interested.

Be aware that these plans have substantial administration fees and the laws governing them are complex and tend to change often. Further, once established they require ongoing feeding.

If you hit a bump in the road financially, you could find yourself being required to make contributions you do not want to make in later years. However, the ongoing contribution rules are not as severe as the old rules for traditional defined benefit plans.

You can send me a message or leave a comment below for some life insurance companies that specialize in these plans and charge pretty inexpensive plan administration fees. They use group annuity contracts to fund them.