If you’re a successful business owner or high-income professional looking to lower your tax bill and supercharge your retirement savings, a cash balance plan might be the most powerful tool you’ve never heard of.
What Is a Cash Balance Plan?
At its core, a cash balance plan is a type of retirement plan — technically a defined benefit plan — that allows for much higher annual contributions than a 401(k) or profit-sharing plan. Think of it as a hybrid between a traditional pension and a 401(k): it offers a predictable, promised benefit like a pension, but it presents that benefit in the form of an account balance that feels familiar to anyone with a 401(k).
The great part is, you don’t have to be a big corporation to set one up. In fact, they’re especially useful for owners of small to midsize businesses, and even solo entrepreneurs — particularly those who are already maxing out their 401(k) and are looking for more ways to reduce taxes and build wealth for retirement.
| Plan Type | Max Contribution (Age 55, 2025) |
| 401(k) + Profit Share | ~$76,500 |
| Cash Balance Plan | Up to ~$265,000+ |
| Total | Over $340,000/year |
How Does It Compare to a 401(k)?
Let’s say you’re over 50 and already contributing the maximum to your 401(k) and profit-sharing plan — that gets you to around $76,500 per year in 2025.
A cash balance plan can add another $100,000–$300,000+ in tax-deferred contributions depending on your age, income, and how the plan is designed. That’s a massive win for your long-term retirement goals and your near-term tax savings.
Why Does It Matter?
1. Save More for Retirement — Fast: Many business owners start saving seriously later in life. A cash balance plan helps you catch up — really fast.
2. Significant Tax Deductions: Contributions are tax-deductible to the business and grow tax-deferred.
3. Employee Incentive & Retention Tool: These plans can also be designed to benefit key employees.
4. Customizable for Business Owners: You can structure the plan to favor older, highly compensated owners while still meeting IRS requirements for fairness.
Who Should Consider One?
Cash balance plans aren’t for everyone — but if you fit one or more of these categories, you should definitely explore them:
• You’re a business owner or partner with consistent, strong income
• You’re over 40 and want to accelerate your retirement savings
• You’re already maxing out your 401(k) and want to do more
• You’re looking for major tax deductions
What’s Next?
Now that you know what a cash balance plan is and why it might be worth exploring, the next step is to understand how it actually works. In Part 2 of this series, we’ll break down the mechanics: contributions, interest credits, and how these plans fit into your broader retirement strategy.
Want help evaluating if a cash balance plan could work for your business? [Let’s talk.]
