Cash Balance Pension Plan

Cash balance pension plans are becoming more and more popular with employers. A combination of a 401(k) retirement account and a pension plan that will give you a monthly income stream, an employer puts a percentage of your salary into the plan. It's a "defined benefit" plan, as you will be guaranteed a certain amount when you retire.

Joe Workstoohard has an account balance of $100,000 when he reaches age 65. If he decides to retire at that time, he would have the right to an annuity based on that account balance. His annuity might be approximately $8500 per year for life. With some cash balance plans, however, he and his spouse could instead choose to take a lump sum benefit equal to the $100,000 account balance.

The contribution limits are also much higher in cash balance plans compared to a regular 401(k) plan, if you want to add to it from your own pocket. If you are 60 or older, you can sock away $200,000 per year in pretax contributions, while a 401(k) plan only allows $57,500 per year for those 50 or older. If Joe's got $200,000 to put away every year, we have one question: is his company hiring?