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CASH BALANCE PLAN BEFORE 50? Too late for this year to setup for a SMALL practice?

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  • CASH BALANCE PLAN BEFORE 50? Too late for this year to setup for a SMALL practice?

    Question for the experts..
    I am in a small practice (three employees). We use a PEO for payroll/benefits/their 401k.
    2019 was a good year (GI) and I turn 50 in JAN.

    1) Should I rush to see if someone can set up a CBP for us by 12/31?
    2) Is there value in doing this before age 50 vs just setting it up in JAN for 2020?
    3) Can I have a CBP setup AND ALSO use my PEO's 401k plan?
    4)What are typical fees to setup/administer? I only found Scwab fees online, but nothing from Litovsky, Emparion or Kravitz.

    Thanks,
    GI in Dallas

  • #2
    FWIW, we spent over six months researching options, reviewing RFPs, and talking before setting up a CBP. Obviously, lowering your tax burden this year would be great, but rushing it--particularly with vacation/holidays--not worth the stress, even if you could find folks willing to humor you.

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    • #3
      Your employee census will play a huge role in whether it makes sense to establish a cash balance plan at work.
      Last edited by Hank; 12-09-2019, 10:28 AM.

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      • #4
        Originally posted by TexDoc1 View Post
        Question for the experts..
        I am in a small practice (three employees). We use a PEO for payroll/benefits/their 401k.
        2019 was a good year (GI) and I turn 50 in JAN.

        1) Should I rush to see if someone can set up a CBP for us by 12/31?
        2) Is there value in doing this before age 50 vs just setting it up in JAN for 2020?
        3) Can I have a CBP setup AND ALSO use my PEO's 401k plan?
        4)What are typical fees to setup/administer? I only found Scwab fees online, but nothing from Litovsky, Emparion or Kravitz.

        Thanks,
        GI in Dallas
        1) No. You should be a good candidate first. Maxing out your 401k with profit sharing, having very little debt, having a very high net (at least $500k) and wanting to make 10 years in contributions. Your demographics should also be favorable (and you'll know this if your PS numbers are good).
        2) No. There is no value at all. You can contribute plenty if you open one in 2020. Besides you need a bunch of cash available to make the contribution early next year, so it is better to start a fresh plan in 2020.
        3) Also no. A 401k plan has to have precise language in the plan document to coordinate with a CB plan. I doubt your PEO 401k has that, and they are also not going to be willing to change their plan doc to fit your CB plan. So you would almost guaranteed to require your own 401k plan, which is fine because you want full control over your plan design and features so that you can minimize your employer contribution expenses by using the best design.
        4) First thing's first. You go to someone who sells plans and who is not a fiduciary, they will sell you a plan. First we need to see whether you are a good candidate and are in need of a CB plan at all. I turn away many, many docs, whether to send them off doing a SIMPLE instead of a 401k plan, or telling them to wait 5-10 years before starting a CB plan, or just telling them not to do a CB plan at all. You have to be a VERY good candidate for a CB plan as it is a complex plan, and you want to be 100% sure that it fits your specific needs. Do your due diligence first and make sure that the plan fits your needs very well, and pricing is the last part.
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          Originally posted by litovskyassetmanagement View Post

          1) No. You should be a good candidate first. Maxing out your 401k with profit sharing, having very little debt, having a very high net (at least $500k) and wanting to make 10 years in contributions. Your demographics should also be favorable (and you'll know this if your PS numbers are good).
          2) No. There is no value at all. You can contribute plenty if you open one in 2020. Besides you need a bunch of cash available to make the contribution early next year, so it is better to start a fresh plan in 2020.
          3) Also no. A 401k plan has to have precise language in the plan document to coordinate with a CB plan. I doubt your PEO 401k has that, and they are also not going to be willing to change their plan doc to fit your CB plan. So you would almost guaranteed to require your own 401k plan, which is fine because you want full control over your plan design and features so that you can minimize your employer contribution expenses by using the best design.
          4) First thing's first. You go to someone who sells plans and who is not a fiduciary, they will sell you a plan. First we need to see whether you are a good candidate and are in need of a CB plan at all. I turn away many, many docs, whether to send them off doing a SIMPLE instead of a 401k plan, or telling them to wait 5-10 years before starting a CB plan, or just telling them not to do a CB plan at all. You have to be a VERY good candidate for a CB plan as it is a complex plan, and you want to be 100% sure that it fits your specific needs. Do your due diligence first and make sure that the plan fits your needs very well, and pricing is the last part.
          That's kinda what I said, isn't it??

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