Preparing for retirement is a problem that even wealthy Americans struggle with. It can be difficult to accurately predict how much you will need to save, and even harder to save consistently over the years. Business owners in particular tend to reinvest their money in order to successfully grow their companies, neglecting their retirement savings in the process. Professionals in fields like medicine or law that require an advanced degree also get a late start on retirement savings and find themselves having to play catch-up later on. For most people, saving for retirement is simply not a top priority until later in life. By then, annual limits on 401(k) profit-sharing plans and other traditional retirement plan contributions make catching up on savings extremely difficult.
For those who need to accelerate their retirement savings, the contribution limits on traditional retirement plans pose a difficulty. An American under the age of 50 may contribute up to $18,000 per year to a traditional 401(k) and up to $5,500 to an IRA. These numbers put a firm limit on tax-advantaged retirement savings and make it difficult to accelerate savings later in life. The numbers increase slightly for those 50 or older ($24,000 to a 401(k) and $6,500 to an IRA) and can be further raised with a 401(k) profit-sharing plan, but still not enough for a significant boost.
Fortunately, cash balance plans provide an efficient and tax-favorable way to quickly grow retirement savings. They have significantly higher contribution limits, often in the range of hundreds of thousands of dollars, making them an excellent option for catching up on savings. This is a staggering difference from traditional retirement plans and opens up a whole new world of possibilities for those who want to give their retirement accounts an extra boost while reeling in substantial tax savings.
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