Roth IRATraditional IRA
Who's EligibleRequires earned income. May or may not be allowed to contribute depending on incomeAnyone with earned income may contribute. May or may not be able to deduct on taxes depending on income.
Tax Advantages of ContributionsNot tax-deductible.Possibly tax deductible depending on income
Age limitNo age limit.No age limit. (SECURE ACT eliminated age requirement)
Annual limits on Contributions2020 IRS limit of $6000; if age 50 or older an additional $1000. Contributions are dependent on your income2020 IRS limit of $6000; if age 50 or older an additional $1000. Can contribute regardless of income but may not be tax deductible.
Conversionn/aYou may be able to convert a traditional IRA to a Roth IRA depending on your financial situation.
Withdrawals of ContributionsContributions can be withdrawn at any time without taxes or penalties.Deductible contributions are taxable upon withdrawal. Penalties will be assessed if withdrawals are taken before age 59½ or if withdrawals are not taken by age 72 . 10% penalty of assets. Taxed upon withdrawal; if meet eligibility taxed as ordinary income tax
Withdrawals of EarningsAny earnings can be withdrawn without taxes or penalties if you are age 59½ or older and your account has been open five years or more.Any earnings are taxable upon withdrawal. Penalties will be assessed if withdrawals are taken before age 59½ or if withdrawals are not taken by age 72. Taxable upon withdrawal; earnings are taxed at your income tax rate in the year you take the withdrawal.
Distributions - Required Minimum Distributions (RMD)No requirements.Required Minimum Distributions upon reaching age 72
Considered Income when withdrawnEarnings from a Roth IRA are not considered income as long as withdrawals are qualified.Both contributions and earnings are considered income unless contributions were not tax deductible

Cash Balance Plan

A Cash Balance plan is a type of retirement plan that belongs to the same general class of plans known as “Qualified Plans.” A 401(k) is a qualified plan. These plans “qualify” for tax deferral and creditor protection under ERISA.

In a Cash Balance Plan each participant has an account. The account grows annually in two ways: first, a contribution and second, an interest credit, which is guaranteed rather than being dependent on the plan’s investment performance.

Many owners and partners are looking for larger tax deductions and accelerated retirement savings. Cash Balance Plans may be the perfect solution for them. The 2006 Pension Protection Act (PPA) and the Cash Balance regulations issued in 2010 and 2014 have made these plans even more flexible and easier to administer, making them increasingly popular choice for successful business owners.

A Cash Balance plan is a defined benefit plan that specifies both the contribution to be credited to each participant and the investment earnings to be credited based on those contributions. Each participant has an account that resembles those in a 401(k) or profit sharing plan. These accounts are maintained by the plan actuary, who generates annual participant statements.

Omega Investment Management

Participant accounts grow annually in two ways:

  • The company contribution – a percentage of pay or a flat dollar amount – is determined by a formula specified in the plan document, and;
  • An annual interest credit. The rate of return is guaranteed and is independent of the plan’s investment performance. That rate changes each year but usually is equal to the yield on 30-year Treasury bonds, which has hovered around 5 percent in recent years.

When participants terminate employment, they are eligible to receive the vested portion of their account balances.

Questions and Answers

The contributions for Defined Benefit Plans are calculated based on the employees' age and compensation. The older the employee and the more compensation (up to IRS compensation limits) the larger the contribution required for the employee.

Defined Benefit Plans (DBP) work especially well with owners or key employees more advanced in age than the other employees. DBP's can even be set up for single employee businesses. The plan can be used with any number of owners, key employees and other employees. The following is only one example of how this type of plan can benefit your company:


EmployeeAgeCompensationAnnual ContributionContribution as % of Total
Employee 140$40,000$7,0744.40%
Employee 235$35,000$4,3712.70%
Employee 330$30,000$2,7071.70%
Employee 425$25,000$1,6561.10%
Total Contribution$159,842100.00%


Total Contribution for Owner$144,034
Total Contribution & Deduction$159,842
Less: Estimated INCOME TAX SAVINGS- $71,929
Net Cash Paid Out$87,913- $87,913
Owner's Contribution Paid by TAX SAVINGS$56,121