How Cash Balance Plans Help Business Owners Slash Taxes and Supercharge Retirement
What Is a Cash Balance Plan?
A cash balance plan is a type of defined benefit retirement plan that blends features of traditional pensions with the flexibility of a 401(k). Each year, the business contributes a set amount into the plan on behalf of the owner and eligible employees. The contributions grow at a guaranteed rate of return, and upon retirement, participants can take the benefit as a lump sum or annuity.
Unlike a 401(k), which has annual contribution limits capped around $69,000 (for those 50 and older in 2024), cash balance plans allow business owners to contribute well into six figures annually, sometimes upwards of $200,000 depending on age and income. These contributions are tax-deductible, making it an incredibly powerful tax planning strategy.
Who Benefits Most from a Cash Balance Plan?
Cash balance plans are especially effective for:
- High-earning business owners or partners (e.g., doctors, dentists, attorneys, consultants)
- Professionals looking to maximize retirement savings beyond 401(k) limits
- Entrepreneurs with predictable and stable cash flow
- Business owners seeking a significant current-year tax deduction
These plans are often paired with a traditional 401(k)/profit-sharing plan for maximum flexibility and tax efficiency.
What Are the Tax Benefits?
Contributions made to a cash balance plan are tax-deductible for the business, reducing the owner's taxable income. For high-income earners in top tax brackets, this can equate to tens of thousands of dollars in tax savings annually.
Additionally, the money inside the plan grows tax-deferred, meaning you don’t pay taxes on the investment gains until withdrawal, often when you're in a lower tax bracket in retirement.
How Do You Set One Up?
Setting up a cash balance plan requires:
- A custom plan design, tailored to your business size, income, and goals
- Actuarial services to calculate contribution levels and ensure compliance
- Annual plan administration and filing requirements
At Sandbox Financial Partners, we specialize in designing and managing retirement plans, including cash balance plans, that align with your personal and business financial goals. We work closely with business owners, CPAs, and attorneys to ensure your plan is tax-efficient, compliant, and optimized for wealth-building.
Let’s Talk: Is a Cash Balance Plan Right for You?
If you're a high-income business owner or self-employed professional, there’s a chance you’re leaving tax savings on the table.
Contact Sandbox Financial Partners to explore whether a custom retirement plan, including a cash balance plan, makes sense for your business and long-term goals.