For high-income business owners and professionals, traditional defined contribution retirement plans, like 401(k)s, often fall short in allowing sufficient tax-advantaged savings. Cash balance plans provide a powerful solution, offering up to 3-4x the contribution limits of a 401k and are 100% tax deductible.
Cash Balance Plans can be designed to address specific needs for business owners:
- Accelerated contribution limits can help close the retirement “funding gap”
- Offers retirement income diversification;
- Reduces annual tax liability during accumulation phase; and
- Provides creditor protection of assets held in plan
What is a Cash Balance Plan?
A cash balance plan is a hybrid retirement plan that blends elements of a traditional pension (defined benefit plan) with features of a 401(k) (defined contribution plan). Employers fund the plan, and contributions are tax-deductible, providing substantial tax savings.
Why Choose a Cash Balance Plan?
Higher Contribution Limits
Cash balance plans allow for contributions significantly higher than a 401(k), making them an attractive option for business owners looking to maximize retirement savings.
| Age | 401(k) Max Contribution (2025) | Cash Balance Contribution (2025) | Total Annual Contribution (2025) |
| 50-54 | $76,500 | $214,000 | $290,500 |
| 55-59 | $76,500 | $274,000 | $350,500 |
| 60-65 | $76,500 | $336,000 | $412,500 |
These higher limits allow professionals, business owners, and firm partners to accelerate retirement savings in the years leading up to retirement.
Tax Savings and Deferral
Employers can deduct 100% of cash balance plan contributions, significantly lowering taxable income. Funds grow tax-deferred, meaning no taxes on investment gains until withdrawals begin—typically in retirement, when tax rates may be lower.
Business Growth and Employee Retention
Offering a cash balance plan can help attract and retain top talent, particularly in industries where competitive retirement benefits are an important factor in hiring. Employees benefit from a retirement savings opportunity, increasing job satisfaction and long-term commitment.
Who Should Consider a Cash Balance Plan?
- High-income professionals (doctors, lawyers, accountants, consultants) looking to maximize tax-advantaged retirement savings.
- Business owners 40+ with stable profits who want to fast-track their retirement contributions.
- If you are maxing out your 401(k) plans and needing a higher contribution vehicle.
Connect With Our Team to learn more about how a cash balance plan can work for your business.
Frequently Asked Questions About Cash Balance Plans
Are Cash Balance Plan Contributions Tax Deductible?
Yes. Contributions made by employers are fully tax-deductible, reducing taxable income while maximizing retirement benefits. This makes cash balance plans an excellent strategy for businesses aiming to lower their tax liability.
Can a Cash Balance Plan Be Rolled into an IRA?
Upon retirement, participants can roll over their cash balance plan funds into an IRA, allowing continued tax-deferred growth. This gives retirees flexibility in managing distributions while avoiding immediate tax liabilities.
When Are Cash Balance Plan Contributions Due?
Employers must make contributions by their business tax filing deadline (including extensions). Early planning can help with compliance and tax savings.
How Much Can I Contribute to a Cash Balance Plan?
Contribution limits vary based on factors like age, compensation, and years to retirement. Older participants can contribute significantly more due to IRS rules allowing larger contributions closer to retirement age.
Start Your Retirement Planning Today
Cash balance plans offer a unique opportunity to maximize savings, reduce tax burdens, and build a secure financial future. Contact us today to schedule a consultation and start building a retirement that works for you.
Sources: irs.gov
DecisionMap Wealth Management is registered as an investment adviser with the Securities and Exchange Commission (SEC). SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability. This material is for informational purposes only and should not be construed as tax, legal, or investment advice. Cash balance plans have specific regulatory requirements, and their suitability depends on individual financial situations. Consult with a qualified financial, tax, or legal professional before implementing any retirement plan strategy. Investment returns are not guaranteed.