A cash balance plan is similar to a 401(k); it is an employer sponsored retirement package that grows over the employee's time at the company. However, unlike a 401(k), a cash balance plan grows either by direct contribution or by interest, rather than the performance of investments.
You can roll over a cash balance plan into a 401(k) or an IRA by taking it out as a lump sum after leaving your job. There is no penalty to doing so even if it is done before retirement age (59 ½ years).Can You Roll a Cash Balance Plan into a 401(k)?
Cash Balance Plan vs 401(k) FAQs
A Cash Balance Plan is a type of defined benefit plan that provides benefits to employees based on their salary and years of service, while 401(k) plans are employer-sponsored retirement savings accounts that allow employees to save pre-tax dollars for their retirement.
The maximum amount you can contribute each year depends on your age and whether there are any limits set by your employer. Generally, contributions cannot exceed 25% of an employee's yearly compensation or $58,000 (whichever is less).
Yes. Cash Balance Plans are funded by both employers and employees. Employers can make mandatory contributions, while employees may choose to make voluntary contributions.
Typical 401(k) plans offer various investment options such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), money market funds, and target-date retirement funds.
Yes. Cash Balance Plans typically have higher contribution limits than those of most 401(k) plans; they also provide more flexibility in terms of contributions and withdrawals. Additionally, Cash Balance Plans can provide a more predictable retirement income stream than 401(k) plans.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
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