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Cash Balance Plan deferrals vs Profit Sharing Contributions ?

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  • Cash Balance Plan deferrals vs Profit Sharing Contributions ?

    Does it make a sense to pay an additional payroll tax to maximize Profit Sharing Plan, if it just possible to have 401k with Safe Harbor and Cash Balance Plan and about 10%(25k) more in deferrals than in design when you max out Profit Sharing plan/ CB combo plan ? We can maximize 401k Safe Harbor/Cash Balance with 215k compensation  and to maximize Profit Sharing plan we need maximum DC plan compensation. Its about 30k more allocated to PS plan for each but with 10% less deferrals and about $3200 in Medicare taxes for 2 of us , but with the same staff costs for both designs , allocated mostly to PS plan . I know that you can have a better liquidity and control in 401k plan and aggressive investment options than Cash Balance plan ?

  • #2
    I would imagine your TPA/actuary should be more than capable of answering this question and run the numbers for you. Or you can pay them a consulting fee to do the analysis. Either way, only someone who is very familiar with your situation can supply you with a definitive answer.
    Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees


    • #3
      Kon , I have all the numbers for both designs and my actuary is giving me the flexibility of going from one plan design to another without amending plan every time .Its more like an investment decision - to defer more but with smaller 401k account or less deferrals with maximizing PS plan . This year we will be maximizing PS plan , but I think we will be doing glidepath .