Cash Balance: Maximum deduction after 10 years

[retbenser]

For the first 10 years of plan participation, we are accruing and deducting 1/10 of the 415 $ limit (ignoring the 150% limit). This generate the large deeuctible contribution.

However, assuming no COLA increase in the 415$ limit, after 10 years of participation, we will see a significant reduction in accrual since we are at the 100% 415$ limit.

Is this correct? Of couse, future COLA increase in the $195,000 limit will help.

Thanks for any response.

[Andy the Actuary]

The plan may also have become precariously close to becoming overfunded. This is a good thing only if you are the tax man lying in wait to collect the 50% overfunding federal excise tax. As Philip Esterhous used to warn, "Be careful."

[rcline46]

Aha, you are now waking up to the wonderful fun parts of Cash Balance plans.

[Effen]

Cash balance or traditional, the result is the same if you are funding the 415 max.

After 10 years the primary person is fully accrued and hopefully funded so there is no reason to continue the plan. This is one place where it pays to have a good consultant who will see this approaching so the plan can be terminated at the correct time.

[Calavera]

You also need to be careful with plan termination. If you submit the 5310 to the IRS, your reason for plan termination most likely would be "Other" with additional explanation as "Plan is fully funded". It may raise some questions about improper front loaded plan design that was not intended to run until retirement.

[Effen]

There is nothing "improper" about front loading. It is only back loading they don't like. Besides, this isn't front loading since the benefit is accruing evenly over 10 years. The IRS shouldn't have a problem with the plan term.

[david rigby]

Why terminate a plan just because it's fully funded?

[Guest Luzifull]

yess OK Thankss! :lol: