Cash Balance Pension Plan
One of my clients (61 years old) is having an excellent year and asked if he could contribute to a Cash Balance Pension Plan. My questions:
He has a single-member LLC – Can this type of plan be set up for an SMLLC?
Where do you claim the amounts paid for the owner? Is that on Schedule C or is it an adjustment to income on Schedule 1?
He already made a $50K contribution to his SEP. Can he also have a Cash Balance Pension Plan at the same time?
What are the contribution limits?
Permalink Submitted by Urban Fleming on Mon, 2022-11-07 21:02
Yes, an SMLLC can use a cash balance pension plan. There are no fixed contribution limits for cash balance pension plans as the contribution limit is dynamic and is determined by age/compensation. There are charts available online that use age and maximum compensation figures but your client will need to engage the services of an actuary to determine this. He will not be able to utilize both a SEP IRA and a cash balance pension plan if he is using form 5305-SEP. The instructions on this form specifically state not to use form 5305 if you ” Currently maintain any other qualified retirement plan.”. He may be able to use a nonmodel SEP with a cash balance pension plan but compliance on this matter should be explored. Cash balance pension plans should be used on a long-term basis- actuarial and plan costs can add up and he must have predictable revenue to fund the plan. If your client does have a long-term outlook, using a solo 401(k) with profit sharing may be a better approach
Permalink Submitted by John Going on Wed, 2022-11-09 19:31
Thank you for the detailed response, @ufleming.