Authored by Matt Waters
When most business owners or high earners think about retirement savings, their mental shortlist usually includes the usual suspects—401(k)s, IRAs, maybe even a SEP or SIMPLE if they’re feeling spicy. But if your income has outgrown what those plans can offer, it’s time to graduate to the big leagues: Cash Balance Plans.
These aren’t your grandfather’s pension plans (although, technically, they’re defined benefit plans in disguise). They’re a unique hybrid of old-school pension structure and modern account-style flexibility—built to help high-income earners supercharge their retirement savings and slash current tax liabilities. Let’s unpack the magic.
What Is a Cash Balance Plan?
At its core, a Cash Balance Plan is a defined benefit plan that acts like a defined contribution plan. (Read that again, it’ll make more sense the second time.)
Each participant has a “hypothetical account” that grows annually with:
- A pay credit (usually a percentage of compensation)
- An interest credit (either a fixed rate or tied to a market index)
Despite the account-style structure, the plan guarantees a specified benefit at retirement—meaning the employer bears the investment risk, not the employee.
Translation: you can sock away significantly more than a traditional 401(k)/profit-sharing plan allows—up to $200,000+ annually, depending on your age and income—and you get a big fat deduction to go with it.
Who Are These Plans Actually For?
Cash Balance Plans are ideal for:
- High-income professionals (think doctors, attorneys, consultants, business owners)
- Partnerships or S Corps with stable earnings
- Firms looking to ramp up retirement savings and cut taxes in the years leading up to retirement
- Businesses with older, higher-earning owners and a younger employee base (more on that in a second)
You’ll want a consistent cash flow and a desire to legally move large amounts of money into retirement buckets while reducing taxable income.
How Much Can I Contribute?
Here’s where things get juicy. Unlike a 401(k), which caps annual contributions at around $66,000–$73,500 (with catch-up and profit-sharing), Cash Balance Plans can allow contributions exceeding $200,000+ per year—especially for business owners in their 50s or 60s.
The older you are, the more you can contribute. Why? Because the plan assumes you have fewer working years left, so it allows for larger contributions to reach your theoretical retirement benefit.
Tax Benefits: Uncle Sam’s Least Favorite Plan
Cash Balance Plans are tax-deferred contribution machines:
- Employer contributions are tax-deductible to the business
- Contributions grow tax-deferred until withdrawal
- Pairs beautifully with a 401(k)/Profit Sharing combo for maximum deduction stacking
You’ll often see this setup called a “combo plan”, where the 401(k) + profit sharing maxes out the first ~$73,500, and the Cash Balance Plan stacks right on top. For high-income owners, it’s not uncommon to see six-figure tax deductions every year.
What About Employees?
Let’s address the elephant in the room: yes, you likely have to include employees. But that doesn’t mean the plan doesn’t have benefits for them. Here’s how it plays out:
- You can design the plan to heavily favor owners while still meeting IRS non-discrimination rules
- Employee contributions are generally modest—often 5–7.5% of salary
- You keep employees happy with added retirement benefits, possibly increasing retention
- Contributions to employees are still tax-deductible, and often cost far less than what you save in owner contributions
Like anything in life, it’s about smart design.
Flexibility and Exit Strategy
Cash Balance Plans are not as flexible as 401(k)s. They require:
- Annual funding commitments
- Actuarial certification
- Compliance testing
But they’re not a life sentence either. Plans can be:
- Frozen (pause new contributions)
- Terminated (typically when exiting the business or retiring)
- Rolled into an IRA at distribution (participants don’t lose portability)
Yes, there’s more complexity and paperwork—but the juice is worth the squeeze when the squeeze involves potentially saving six figures on your tax return.
Bottom Line: Is a Cash Balance Plan Right for You?
If you’re a business owner with strong cash flow, are already maxing out your 401(k), and want to accelerate retirement savings while hammering down your taxable income, the answer is likely: yes.
But these aren’t plug-and-play. They require thoughtful design, coordination with your CPA, and a plan administrator who knows what they’re doing.
Good news? That’s where the Prime Capital Financial Denver team comes in.
Want to See the Numbers?
We run custom plan designs and illustrations for clients who are serious about tax mitigation and long-term wealth accumulation. If you’re wondering how a Cash Balance Plan could fit into your retirement and tax strategy, let’s build a model tailored to your business.
Your tax bill and future self will thank you.
If you need help or want to chat with a financial advisor in our Denver office, we would love to talk to you about your specific situation.
This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office.
