High Networth Deduction

HNDPlans

Cash Balance Retirement. Learn about a retirement plan option that will allow for deductions up to $200,000+ per year.

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How It Works

ABOUTHNDs

AKA Cash Balance Plans

ONE Future Cash Balance Plan (HND) Basics

Cash Balance and 401k Notable Differences

Cash Balance Contributions

Introduction:	Cash balance plans are plans that are additional to a standard 401 with profit sharing. Generally many of the 401k and profit sharing buckets are funded prior to additional contributions to the Cash Balance plan.
401k annual Elective Deferrals:	$22,500 for participants under age 50 (2023 indexed for inflation) plus an additional $7,500 catch-up for participants age 50 or older Contributions may only be made during the calendar year
401k Annual Profit Sharing:	Additional year end contributions Can contribute up to an $66,000 (minus any elective deferrals excl. catch-up) Participants 50 or older can contribute up to $73,500 (minus any elective deferrals) Capped at 90% of income
Names:	This site references "Cash Balance Plans", "High Networth Deduction" and "HND Plans" interchangeably.

Notable Differences:

There is no fixed annual limit on what can be contributed.
- Annual contributions are calculated based on the participants age and plan design.
- Younger participants might be limited to maximum of $75,000; older participants could have an annual limit of $300,000+
Investment rate of return is fixed in the plan document, as example 5%.
- Actual investment returns will adjust the funding amount.
- If the actual returns are higher than the stated RoR, contributions would be lower, and vice versa.
Plans need a commitment.
- Defined Benefit plans must show consistent contributions over a minimum number of years. The IRS does not define, the industry had adopted three (3) years as a minimum.
- This note is of particular imporantance when reviewing adding a Cash Balance Defined Benefit.

Distribution Rules:

Attainment of age 59 ½. If balances are pulled prior a 10% penalty and normal income taxes may apply

Cash Balance Contributions:

Adding a Cash Value Defined Benefit can dramatically increase your contributions.

401(k) and Profit Sharing Plans are “Defined Contribution” plans.
- You have discretion to modify the contributions each year.
- Contributions to employees generally range from 3% - 5% of their W2 compensation.
Cash Balance Plans are “Defined Benefit” plans.
- Plan on making these contributions for a minimum of three (3) years or longer.
- Contributions to employees will increase to a minimum of 7.5% of their W2 compensation.

Includes profit sharing and non-elective contributions to the Defined Contribution Plan.

Example Table:

Employee	Age	Annual Elective Deferrals	Profit Sharing Contribution	Hypothetical Cash Balance Contriubution	Total
Owner/Officer 1	45	$22,500	$43,500	$100,000	$166,000
Owner/Officer 2	51	$30,000	$43,500	$200,000	$273,500

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