Author Topic: Cash Balance Plan Questions  (Read 1756 times)

wallabyjoe

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Cash Balance Plan Questions
« on: July 11, 2015, 09:58:43 AM »
My wife works at a hospital with a defined benefit cash balance plan. The basics are:
-Guaranteed 6% return while you work there
-Guaranteed 5% if you leave your money there after you leave
-You can't take it out until 65...unless you leave, in which case you can roll it over or take it out in a lump sum
-No apparent tax advantages

About us:
-Married, combined gross income ~$120,000
-Already maxing out Roths, and 401k(s)
-Additional savings currently going to a taxable Vanguard account

Anyway the questions seems to be is a guaranteed 6% return better than a slightly higher average return with my Vanguard index funds (and included risk)?

Thoughts mustachians?

beltim

  • Magnum Stache
  • ******
  • Posts: 2841
Re: Cash Balance Plan Questions
« Reply #1 on: July 11, 2015, 10:08:01 AM »
Most defined benefit plans don't allow you to contribute more - so if you can't take it out until you leave, what is there to decide?

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: Cash Balance Plan Questions
« Reply #2 on: July 11, 2015, 10:18:45 AM »
Besides what Beltim said, since there are no tax benefits, that 6% should be reduced by the benefit you would realize in a tax sheltered account. So if you're in the 25% bracket, 6% return becomes 4.5% when compared to your options in a 401k or IRA account

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Cash Balance Plan Questions
« Reply #3 on: July 11, 2015, 11:20:53 AM »
So is this pre-tax or post-tax money? You say "roll it over" (which generally means into an IRA or other tax-advantaged account) and "no apparent tax advantages". Those 2 things seem to be in conflict.

Besides what Beltim said, since there are no tax benefits, that 6% should be reduced by the benefit you would realize in a tax sheltered account. So if you're in the 25% bracket, 6% return becomes 4.5% when compared to your options in a 401k or IRA account

OP said they were already maxing out retirement accounts. So the opportunity cost is taxable investing.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3585
  • Location: Texas
Re: Cash Balance Plan Questions
« Reply #4 on: July 11, 2015, 11:28:43 AM »
Sounds reasonable to start putting your taxable investment money in there. when you FI, the money is available.

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: Cash Balance Plan Questions
« Reply #5 on: July 11, 2015, 12:26:37 PM »
OP said they were already maxing out retirement accounts. So the opportunity cost is taxable investing.

Whoops, didn't see that part, you're right