How long do you have to keep a cash balance plan?

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Cash balance plans are a type of defined benefit pension plan that are designed to provide retirement income for employees. There is no set time frame for how long you have to keep a cash balance plan, as the length of time you participate in the plan will depend on your individual circumstances and the terms of the plan.

In general, cash balance plans are intended to provide retirement income for employees, so it is likely that you will participate in the plan until you reach retirement age. However, cash balance plans are portable, which means that you can take the plan with you if you change jobs. If you leave your job before reaching retirement age, you may be able to roll over your cash balance plan into a new employer’s plan or into an individual retirement account (IRA).

It is important to carefully review the terms of your cash balance plan to understand your options for participating in the plan and to make informed decisions about your retirement savings. If you have any questions about your cash balance plan or your retirement savings options, it is a good idea to speak with a financial advisor or a retirement specialist.

How long do you have to keep a cash balance plan?

The IRS does not say specifically how long you have to have a cash balance plan open. However, they say you need to open it for at least several years. They have yet to define what several means, but most people interpret it as 3 to 5 years.

The IRS did not establish a safe harbor or specific threshold for a period of time. However, the key to understanding is that these are permanent plans with long-term intent. You don’t have to have the plan open forever, but you should plan on having it open indefinitely.

So if you have a plan for 3 to 5 years and terminate with reasonable cause, you’re probably fine. But sometimes, you never know with the IRS.

So the important point to remember is to consider this as part of your long-term retirement and benefits strategy and make mandatory contributions each year.

A 401(k) is an elective plan. As such, you’re not required to fund the plan yearly, but you can add the contribution in when you want a higher overall retirement level. You can also take the deferral and the profit-sharing off if you think your cash flow is like this year.

But we know that sometimes life can get in the way of our intentions. If your business changes, dissolves, or you have other retirement structuring plans, you typically can terminate a cash balance plan and roll it over into an IRA.

As long as you approach the plan as it is permanent in nature, you will most likely be fine. We can discuss any concerns you might have regarding the plan, permanency, and how long you have to keep a cash balance plan open.

Paul Sundin

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