A Balanced Plan by David Ranney

 

Cash balance plans can help dentists defer taxes, save more for retirement and retain employees

by David Ranney

Fig. 1: Cash balance plan example for a 55-year-old client.

• Tax savings. Cash balance plans allow annual contributions up to the deadline of the filing of the practice’s tax return, and therefore serve as an excellent tool to move profits to the business owners, who can set aside incredibly large amounts of income. Practice owners who are older than 60, for example, can put aside more than $300,000 annually in tax-deferred money. Fig. 2 shows the maximum deferrals for 2023.
• Staff retention. The cash balance plan is not only a great way to save for retirement but also a powerful staff retention tool. These plans can be offered to a limited number of staff or to an entire practice. Depending on actuarial testing, this could include just the owner and a few high-value members of staff the practice owner hopes to retain. This is especially relevant in the dental sector where turnover is high.

Fig. 2: Maximum deferrals in 2023.

• A cash balance plan is permanent in nature, and unless there is a major change in the business, such as a significant downturn in income or the closing or sale of the business, the plan will remain in place. Practice owners should expect the plan, and their contributions to it, to remain in existence for at least three years. When an employee retires or the plan closes, the practice owner must offer a lifetime annuity option or a lump sum. The individual participant’s plan balance can be rolled over into a traditional IRA or Roth IRA.
• Cash balance plans are also more complex to set up than 401(k) plans, and in addition to setup fees, cash balance plans also require annual actuarial reviews. Expect setup costs between $2,000 and $5,000 and annual administrative fees from $2,000 to $5,000.
• Cash balance plans, like 401(k) plans, also have investment management fees. While traditional providers have fees and total costs of between 1.5% and 2.5% of assets under management (AUM), some forms (including Rebalance) have much lower fees and total costs of between 0.25% and 1% AUM.

David Ranney brings deep experience to his role as vice president of sales for Rebalance’s premier small business 401(k) offering, BetterK. Before Rebalance, Ranney spent more than two decades at Fidelity. He partners with small businesses throughout the United States, educating owners on how to avoid high 401(k) fees, optimize asset allocation, increase plan participation and utilize retirement planning.
Email: dranney@rebalance360.com