A recent favorable IRS ruling has generated significant buzz on cash balance retirement plans!

A recent favorable IRS ruling has generated significant buzz on cash balance retirement plans! We expect this ruling to skyrocket the number of business owners and other highly-paid professionals using cash balance plans. These plans allow highly compensated participants to accelerate tax-deferred savings at a much higher rate than is possible with more common 401(k) plans. 401(k)s, like other defined contribution plans, can help clients shelter compensation from taxes. However, 401(k) plans must follow federal limits for annual pretax contributions—in 2015, participants could only contribute $18,000 if under age 50 and $24,000 if over age 50. In contrast, cash balance plans have defined benefits and do not need to adhere to any government-set maximums regarding annual pretax contributions. Cash balance maximum pretax contributions are calculated for each participant based on age, earnings, and the preset target return on the plan’s assets. What does that mean for a client who owns a professional practice or a business? With a cash balance plan, an older, highly-compensated practice owning doctor, lawyer, or business owner can deposit more than $250,000 a year in a pretax account—and the costs of sponsoring and administering the plan for employees remain below those of a 401(k) plan. These tax-deferral benefits apply as long as the plan ensures “proportionate benefits are provided to a sufficiently broad-based employee population,” according to the U.S. Department of Labor’s Employee Benefits Security Administration. GROWING POPULARITY The IRS issued a long-awaited ruling in September 2014 that added leeway to how asset managers may set targeted returns for these plans. Since last year, we have seen big growth in the popularity of cash balance plans. Specifically, the new IRS ruling allows plan sponsors (business owners) broader options for what’s known as the interest-crediting rate (ICR) for their cash balance plans. According to the IRS rule, a cash balance plan’s ICR cannot exceed “a market rate of return” on plan assets. Before 2010, the IRS had interpreted the market rate to mean the 30-year Treasury rate (then around 3%). With this recent ruling, the IRS broadened its interpretation to allow ICRs to match “actual rate of return” estimates, permitting as much as 6%! These new IRS regulations allow sponsors to preset different ICRs for different groups of participants—paving the way for more aggressive investing for younger employees, which reduces overall costs by lowering the size of cash deposits required to meet the plan’s obligations. MARKET BOOST Both the recent IRS ruling and the equity market’s bullish performance have multiplied interest in cash balance plans. What defines the “right” demographics? The best scenario from your point of view: a few highly-compensated older employees and anywhere from a few to 100 younger lower earners. Our team of professional advisors is dedicated to getting acquainted with your situation and assessing if this exciting strategy may benefit you and your employees. Can we help you get started? Please reply to this message and let me know! William Hall III Top of the Table member for 7 straight years. 100% Turnkey system. All team members provide coaching and Mentorship. - Cash Balance Plans - Premium Financing for whole life and IULs (unique)nbsp;- Charitable Planning We are a Team and Network of Attorneys, CPAs, Tax Advisors, Actuaries, and Insurance Professionals. We positioned our advisors with just the right record-keeping platform to fit any type and size of the client. We work only to support Financial Planners and Wealth Management Advisors with planning and strategic marketing campaigns. www.taxreductionspecialists.com - Call 704-689-9196 for the advisor's login and password.