Cash Balance Plans

A cash balance plan is a type of retirement plan that combines the high contribution limits of a defined benefit plan with the flexibility and portability of a defined contribution plan. It provides a fixed, annual contribution to each participant’s account, which grows at a specified interest rate. At retirement, participants have the option to take their benefits as a lump sum or an annuity, offering greater flexibility in retirement planning. Cash Balance Plans are a type of qualified retirement plan that can allow business owners and highly compensated employees (HCEs) to accelerate savings and maximize tax deductions. With the right demographics, contributions between $100,000 and $300,000 for owners or HCEs can be made. All contributions are fully deductible to the business for federal income tax purposes. Cash Balance Plans work best when combined with a 401(k) Plan. This provides for flexibility to the employees and employer in funding contributions, yet allows for maximum contributions.

Hypothetical Account Participants have a hypothetical “account” that is credited with a pay credit (a percent of pay or flat dollar amount) and an interest credit (index-based). Retirement Benefits Are expressed in the form of a lump sum to participants and are easily portable to another group retirement plan or an IRA at retirement. Combo Plans A Cash Balance Plan can be paired with a 401(k) Plan to allow for even higher savings. Federal Guarantee Benefits are usually insured by the Pension Benefit Guaranty Corporation (PBGC).

Meet Dr. Charles, a 55-year-old sole practitioner with no employees. Using a Cash Balance Plan alongside a 401(k)/Profit Sharing Plan, he was able to contribute over $280,000 toward his retirement in a single year. For high-income individuals like physicians, consultants, or attorneys operating alone or in partnerships, Cash Balance Plans provide a way to supercharge savings while reducing taxable income.

Paul and Mary are a married couple, both age 61, who own a professional corporation together with no outside employees. Through a strategic plan design combining a Cash Balance Plan with 401(k)/Profit Sharing, they were able to contribute over $537,000 annually. This approach works especially well for small, family-run businesses where both spouses are active participants and looking to build retirement wealth rapidly.

This example illustrates a typical client using the OwnersPlus™ Cash Balance Plan such as a small medical or dental practice with 1–5 employees. In this case, the business owner contributes the majority of total retirement funding, while still offering meaningful benefits to their team. With thoughtful plan design, over 98% of contributions go toward the owner’s retirement—making it a highly efficient and tax-savvy option for small business owners who want to reward themselves and their staff.