Cash Balance Plans for Professional Practices

Cash balance plans, often referred to as hybrid retirement plans, are defined benefit plans that in many ways resemble defined contribution plans. Consequently, a cash balance participant could potentially defer tax by directing his or her practice to invest up to three or four times the Sec 401(k)...

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Bibliographic Details
Published in:Journal of Accountancy 2015-03, Vol.219 (3), p.48
Main Authors: Evans, Allison L, Irving, James H
Format: Article
Language:English
Subjects:
Compensation
Conversion
Deferred compensation
Defined benefit plans
Defined contribution plans
Earnings
Employees
Income taxes
Law firms
Limited liability companies
Patient Protection & Affordable Care Act 2010-US
Pension plans
Professional practice
Professionals
Profit sharing plans
Retirement plans
Self employment
Surtax
Tax deferred privileges
Tax increases
Tax rates
Wages & salaries
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Summary:Cash balance plans, often referred to as hybrid retirement plans, are defined benefit plans that in many ways resemble defined contribution plans. Consequently, a cash balance participant could potentially defer tax by directing his or her practice to invest up to three or four times the Sec 401(k) limit into a cash balance plan in a given year (depending on age, time until retirement, and other factors), with a corresponding decrease in salary that will save current tax dollars. To optimize tax deferral and retirement savings, a cash balance plan can be used in conjunction with a Sec 401(k) plan and a profit sharing plan. Though both cash balance plans and pensions are defined benefit plans, cash balance plans possess features of Sec 401(k) accounts that make them appealing in ways traditional pensions are not. The health care and professional services industries, which are heavily represented by professional practices, account for nearly two-thirds of all cash balance plans.
ISSN:0021-8448
1945-0729