Part 4: Advanced Strategies and FAQs About Cash Balance Plans
By now, you know the basics of how cash balance plans work and how to set one up. But what about the edge cases — when income drops, your business evolves, or you’re planning an exit?
Let’s dive into the real-world questions business owners and high earners ask once they’re seriously considering a cash balance plan.
Can I Still Contribute to a 401(k) If I Have a Cash Balance Plan?
Yes — and you should.
Cash balance plans are layered on top of a 401(k)/profit-sharing combo. This strategy is often called a “combo plan” and allows for maximum retirement contributions.
Example: A 55-year-old business owner could contribute:
- $76,500 to a 401(k) + profit share (2025 limit)
- $265,000 to a cash balance plan
- Total: Over $340,000/year in tax-deferred savings
What Happens If My Income Drops?
Cash balance plans are designed as long-term commitments, but there is some flexibility. If your business has a bad year:
- You can contribute at the lower end of the allowable range
- You may be able to freeze the plan temporarily (no new benefits accrue)
- If needed, you can terminate the plan — just know that the process is subject to IRS and PBGC rules
Bottom line: If you have a year or two of lower income, it’s manageable — but cash balance plans work best when funded consistently.
Can I Use a Cash Balance Plan If I Want to Sell My Business?
Yes, and it can actually be a valuable exit planning tool.
- You can use a cash balance plan to accelerate tax-deferred savings in the years leading up to a sale
- Contributions reduce your taxable business income, which can increase net sale proceeds
- If structured properly, you may even include the cost of funding the plan as part of your seller’s discretionary earnings
Pro tip: Start planning 2–3 years in advance of a sale to maximize benefits and avoid surprises.
Can the Plan Be Terminated?
Yes. While cash balance plans are designed to be long-term, they can be terminated for valid business reasons:
- Business closure
- Sale or merger
- Shift in workforce or compensation structure
When a plan is terminated, all participants become fully vested, and account balances are distributed or rolled over to IRAs or other qualified plans. A good advisor and actuary will guide you through this process to ensure compliance.
How Are the Assets Invested?
Assets in a cash balance plan are typically managed conservatively, since the employer bears the investment risk. Most plans use a mix of:
- Bonds
- Low-volatility funds
- Some equity exposure (depending on risk tolerance and funding goals)
The goal is to align investment returns with the plan’s interest crediting rate — often 4%–5% — to reduce volatility in required contributions.
Can I Have a Cash Balance Plan If I’m Self-Employed?
Absolutely. Solo business owners (think consultants, specialists, or one-person LLCs) are perfect candidates for cash balance plans — especially those with high and steady income.
A “Solo Combo Plan” lets you take full advantage of 401(k), profit-sharing, and cash balance contributions — all on your own terms.
Final Thoughts
A cash balance plan isn’t right for every business — but for the right person, it can be a game-changing tool to:
- Supercharge retirement savings
- Slash current-year taxes
- Attract and retain key employees
- Strategically plan for business transitions or exit
Thinking a cash balance plan might make sense for you?
Let’s talk through the numbers and design a plan that fits your goals. [Schedule a consultation here.]
