Cash Balance Plans

[emergentmd]

I am a single Member LLC owner and looking into Cash Balance Plans. Anyone have one set up and what pros/cons have you seen. Any recommendation on who you use for actuarial services and the investment broker?

I believe Schawb does it in house (Actuarial + Broker) and leaning towards them for simplicity. Anyone have one with Schwab and what has your experience been?

Doing online calculations based on age, I believe I can fund around 230K/yr plus I believe I am eligible to continue my SEP Max.

Any advice and thoughts would be great as I am at a point in life where this makes much sense.

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[EctopicFetus]

I am a single Member LLC owner and looking into Cash Balance Plans. Anyone have one set up and what pros/cons have you seen. Any recommendation on who you use for actuarial services and the investment broker?

I believe Schawb does it in house (Actuarial + Broker) and leaning towards them for simplicity. Anyone have one with Schwab and what has your experience been?

Doing online calculations based on age, I believe I can fund around 230K/yr plus I believe I am eligible to continue my SEP Max.

Any advice and thoughts would be great as I am at a point in life where this makes much sense.

Will send DM.

 

[maxxor]

Will send DM.

Emparion offers this. They can give you a free illustration. They are popular in Radiology circles. I am not successful enough to need their services yet but maybe in a couple years 🙂

You need a certain amount of cash to dedicate to this for a couple years but it can be worth it.

 

[emergentmd]

Emparion offers this. They can give you a free illustration. They are popular in Radiology circles. I am not successful enough to need their services yet but maybe in a couple years 🙂

You need a certain amount of cash to dedicate to this for a couple years but it can be worth it.

Good to know. They seem to be one of the big boys when it comes to this. I am at the point where this makes sense over any other options to save $$$ and keep it from the gov as long as I can.

Plus, I think at my age, I can create one now and then terminate in 10 years then create a new one before retirement.

 

[EctopicFetus]

Good to know. They seem to be one of the big boys when it comes to this. I am at the point where this makes sense over any other options to save $$$ and keep it from the gov as long as I can.

Plus, I think at my age, I can create one now and then terminate in 10 years then create a new one before retirement.

As mentioned. Depends on how much you want to put in. There is a lifetime limit.

 

[Jabbed]

As mentioned. Depends on how much you want to put in. There is a lifetime limit.

I think he’s implying that he is planning to max the $3.5M limit and then create a second plan to work around that.

 

[EctopicFetus]

I think he’s implying that he is planning to max the $3.5M limit and then create a second plan to work around that.

It’s a personal lifetime limit.

 

[Mbekweni]

I used a private actuary who is excellent and I found through White Coat Investor. It’s about 2k a year in fees so you have to really want to pack in the $$. We hold the funds with Schwab but that is free. His fees are about the same as the default Schwab but we get way more personalized service and customized plan. Big move is my wife is also a doctor and we created a controlled group defined benefit plan. So one plan and single fee but we both get to put in the respective max for our incomes. At 40 it’s about 160k a year for me into the DBP (plus 401k contributions, mega backdoor Roth contributions as well). I also work with Vituity and get to use all of their retirement plans too as separate unrelated employer for income earned through them.

 

[emergentmd]

It’s a personal lifetime limit.

The third party who manages this told me that after 10 years, you can close it then roll it over to an IRA then start another CBP. Not sure if this is true but this is what I was told.

 

[EctopicFetus]

The third party who manages this told me that after 10 years, you can close it then roll it over to an IRA then start another CBP. Not sure if this is true but this is what I was told.

Yes. But it doesnt change the lifetime limits. So the reason to close it and roll it is often that you can then invest in ways you cant with a Cb plan. This is especially true if it’s a group plan. Im less familiar with the specifics of an individual CB plan. The lifetime limits however holds true regardless of the number of plans you participate in.

 

[emergentmd]

Yes. But it doesnt change the lifetime limits. So the reason to close it and roll it is often that you can then invest in ways you cant with a Cb plan. This is especially true if it’s a group plan. Im less familiar with the specifics of an individual CB plan. The lifetime limits however holds true regardless of the number of plans you participate in.

I didn't realize this, Ill check. The CBP I would invest in would allow me to invest in all equities, no different than a 401K.

 

[Pudortu]

I’ve been meaning to ask this question to those of you interested in or that have Cash Balance plans…but at what income do you all consider the CBP to be worth it?

A preemptive sorry if this is derailing the thread too much.

 

[Mbekweni]

Look at your tax savings and measure against the fees. Also in a high tax state you will likely need 12-16% excess returns to exceed the tax savings of a cash balance plan held for 5 years.

Roughly speaking I think if you are a mega saver and plan to max it out in addition to your 401k you can think about a cash balance plan at 400k but given the fees involved becomes a no brainer with incomes in excess of 500-600k a year. Also best if over 40 and certainly over 50 as you can start to put away 150-250k a year into the cash balance plan.

 

[emergentmd]

At 50ish, you can put 225K+ and in a 30% bracket would pay 75K less taxes a year with costs about 3K/yr for management.

 

[EctopicFetus]

I didn't realize this, Ill check. The CBP I would invest in would allow me to invest in all equities, no different than a 401K.

Yeah.. let me know if they tell you something different but i just went through this with my actuary.

 

[EctopicFetus]

Look at your tax savings and measure against the fees. Also in a high tax state you will likely need 12-16% excess returns to exceed the tax savings of a cash balance plan held for 5 years.

Roughly speaking I think if you are a mega saver and plan to max it out in addition to your 401k you can think about a cash balance plan at 400k but given the fees involved becomes a no brainer with incomes in excess of 500-600k a year. Also best if over 40 and certainly over 50 as you can start to put away 150-250k a year into the cash balance plan.

It is really about do you have excess money to save and do you want to save it in a tax efficient manner. It definitely IMO doesnt make sense unless you have about 100k/year you want to save.

Then again, even better if you have more you can save. You can really superfund the CB plan if you want and have a lot of money to save.

Note under no circumstance can i think of why the DB plan is better than (read as put your money here first):

1) 401k etc.. (70k a year)
2) Backdoor roth
3) HSA

If you filled all those buckets.. and have more you want to save and your spouse (if you have one) maximized all those as well then.. and only then.. would I do the CB plan. The amount of income that requires really depends on how much you need/spend.

You also have to look at your marginal tax rate.. At some point it makes more sense to pay the tax and save it in a regular (post tax) account.

 

[Pudortu]

Thanks for this..
In addition to maxing out above, I put in about $150k annually into a regular taxable account. I guess the main advantage of a taxable is that it’s readily accessible in case there’s a huge emergency. It’s at about $2 mill now. I think we are out of that emergency window now.

My hesitancy with CBP is lack of access. Also, will the tax savings from a CBP really help in the end? We will have to pay taxes in the end just like with 401k.

Also, I invest 100% stocks and no bonds so I get worried about having to increase a significant contribution in a down year but I guess that forces me to buy low.

 

[EctopicFetus]

Thanks for this..
In addition to maxing out above, I put in about $150k annually into a regular taxable account. I guess the main advantage of a taxable is that it’s readily accessible in case there’s a huge emergency. It’s at about $2 mill now. I think we are out of that emergency window now.

My hesitancy with CBP is lack of access. Also, will the tax savings from a CBP really help in the end? We will have to pay taxes in the end just like with 401k.

Also, I invest 100% stocks and no bonds so I get worried about having to increase a significant contribution in a down year but I guess that forces me to buy low.

The CBP can be closed and converted to a 401k type account. the tax thing I always find interesting when people dont think it will save them money.

Let’s pretend you are married and your retirement money is all in the 35% marginal bracket (500k-750k in AGI). Let’s pretend you save 200k in all the tax deferred accounts. The account has 200k in it 130k in real money and 70 in tax savings. Let’s say you are 59 years old. (you can withdraw without penalty at 59.5 (but i think keeping

If you pulled out that 200k the following year you would pay nearly nothing in taxes. You get your standard deduction which is 30k in 2025, and without complexities.. that leaves 170k that will get taxed.

Rounding.. on the first 100k you will pay 12% in taxes.. so thats 12k in taxes, the next 70k would be taxed at 22% so lets round to 15k.

So on that 200k your taxes are 27k rather than 70k. Thats an extra 43k in your pocket to spend. So it all helps.. it all matters.

Throw in that the younger you are another way to think about it is that 43k will grow for you tax deferred. even if rates go up they are unlikely to go up significantly on these “lower” tax brackets.

Thanks for coming to my TED talk.

 

[Mount Asclepius]

The CBP can be closed and converted to a 401k type account. the tax thing I always find interesting when people dont think it will save them money.

Let’s pretend you are married and your retirement money is all in the 35% marginal bracket (500k-750k in AGI). Let’s pretend you save 200k in all the tax deferred accounts. The account has 200k in it 130k in real money and 70 in tax savings. Let’s say you are 59 years old. (you can withdraw without penalty at 59.5 (but i think keeping

If you pulled out that 200k the following year you would pay nearly nothing in taxes. You get your standard deduction which is 30k in 2025, and without complexities.. that leaves 170k that will get taxed.

Rounding.. on the first 100k you will pay 12% in taxes.. so thats 12k in taxes, the next 70k would be taxed at 22% so lets round to 15k.

So on that 200k your taxes are 27k rather than 70k. Thats an extra 43k in your pocket to spend. So it all helps.. it all matters.

Throw in that the younger you are another way to think about it is that 43k will grow for you tax deferred. even if rates go up they are unlikely to go up significantly on these “lower” tax brackets.

Thanks for coming to my TED talk.

I agree. There is one consideration though that I haven’t fully delved into that may be worth exploring.

For our CBP the TPA has advised us that if our return is significantly higher than our insured minimum then the plan could limit future contributions. This leads to a portfolio with a more conservative allocation. In theory, if you put the money instead into a post-tax account and invested for a significant enough period of time, you could end up better off assuming a consistent, more aggressive return (even if just S&P 500 index) despite the initial higher tax bracket hit.

I haven’t dug into the weeds of this issue though and would be interested if anyone knows more.

 

[sloh]

I agree. There is one consideration though that I haven’t fully delved into that may be worth exploring.

For our CBP the TPA has advised us that if our return is significantly higher than our insured minimum then the plan could limit future contributions. This leads to a portfolio with a more conservative allocation. In theory, if you put the money instead into a post-tax account and invested for a significant enough period of time, you could end up better off assuming a consistent, more aggressive return (even if just S&P 500 index) despite the initial higher tax bracket hit.

I haven’t dug into the weeds of this issue though and would be interested if anyone knows more.

Curious if this is true. I’m doing CBP right now and am 36 yo, which was strongly advised by my financial advisor. But if putting that money into index funds is more lucrative in the long run, I’d obviously rather do that

 

[EctopicFetus]

I dove into this issue. All it will do is limit how much you can put in because you have the lifetime limit. What that means is at every age there is a max you can have in there. For example at age 50 you may only be allowed to have $1.8m. The smart move IMO, invest as much as you can afford, invest aggressively and when you hit your max (for that age) close the plan. This way you get all the benefits.

 

[Mount Asclepius]

I dove into this issue. All it will do is limit how much you can put in because you have the lifetime limit. What that means is at every age there is a max you can have in there. For example at age 50 you may only be allowed to have $1.8m. The smart move IMO, invest as much as you can afford, invest aggressively and when you hit your max (for that age) close the plan. This way you get all the benefits.

How does this work when you have multiple individuals of a group all at various ages in the same plan? Is it still just based upon individual caps by age?

 

[EctopicFetus]

How does this work when you have multiple individuals of a group all at various ages in the same plan? Is it still just based upon individual caps by age?

Yes. Individual caps. There is also some consideration for how long someone has been with the company. I dont have a great understanding of that tbh.. its not major.. but for example someone who is 48 might have a cap of 1.8m whereas the 62 year old has a cap of 3.2m(roughly) and the 35 year old might be at 600k.

Note all the numbers are made up but this is how it is done.