Cash Balance Plan

A Cash Balance Plan is a type of defined benefit retirement plan that offers one of the most powerful tax-saving structures available to businesses and self-employed individuals — allowing for significantly larger tax-deductible contributions than a standard 401(k) or SEP plan.

How it works:

✓ Establish the Plan — A formal Cash Balance Plan is set up alongside your existing retirement structure, with contribution levels tailored to your income, age, and business goals.

✓ Fund Individual Accounts — Each participant has their own account that grows in two ways: contribution credits, based on a percentage of compensation set by the plan, and interest credits, at a fixed or variable rate defined by the plan's terms.

✓ Make Employer Contributions — The business makes contributions on behalf of participants, with limits scaled to age and income — allowing older, higher-earning owners to contribute significantly more than younger participants.

✓ Deduct Contributions Immediately — Contributions are fully tax-deductible to the business in the year they're made, directly reducing taxable income.

✓ Grow Assets Tax-Deferred — Funds inside the plan compound without being taxed until distribution, allowing the full balance to grow over time.

Why it works as a tax strategy:

  • Tax-Deductible Contributions — Contributions made by the employer are fully deductible, directly reducing the business's taxable income.

  • Tax-Deferred Growth — Funds inside the plan grow without being taxed until they're distributed, letting the full balance compound over time.

  • Higher Contribution Limits — Cash balance plans allow for substantially larger contributions than most retirement plans, with limits scaled to a participant's age and income — making this a strong option for high earners looking to shelter more income while building serious retirement savings.

Best suited for: Business owners and high-income self-employed individuals with consistent, meaningful profits who want to shelter significantly more income than a 401(k) or SEP allows, while accelerating retirement savings.

Note: Cash Balance Plans involve actuarial calculations, funding commitments, and compliance testing (including coordination with any existing 401(k) plan) and should only be implemented with guidance from a qualified professional.