Cash Balance Plans

Cash Balance Plans

Cash Balance plans are one of the fastest growing retirement plans in the United States.  With double digit growth almost every year since 2001, and increasing exponentially, they are quickly becoming one of the more popular plans in the U.S. With flexibility, tax advantages, lower costs, and the ability to run alongside 401(k) plans – their appeal is undeniable.

They allow you to substantially increase your retirement savings and reduce your tax liability.  Rather than contributing a few thousand every year towards an IRA, you could be putting away more than $100,000 pre-tax.  

tax benefits of cash balance plans

how the appeal of cash balance plans evolved

In the past, we saw Fortune 500 companies offer these plans as an incentive to keep high level executives.  Now, its small businesses, private practices, self-employed & independent contractors that are driving the growth - with nearly 80% of all plans. Why?

  • Taxes: Higher incomes mean more taxes. Plans allow those in high tax brackets to maximize tax deferred savings. With the a cash balance plan, you have the ability to put away $100,000+ per year, pre-tax.

  • Lower Costs: Costs to set up and administer these plans have decreased substantially. With technology making things easier than ever before - small business and individuals have access to tools the biggest firms in the world use.

  • Accelerated Retirement Savings:  For those that want to catch up on retirement savings, this allows them to put tax-deferred money aside at a much higher rate a traditional 401(k) or IRA plan.

  • Flexibility: You have control over how much you want to contribute to these plans and can set them up in a way that works best for you.


Case Study

We helped an independent contractor set up a plan, allowing them to set aside $141,000 a year of pre-tax dollars. Saving more than $52,000/year in federal taxes, plus additional state income taxes.

401(k) + Cash Balance Plan Contributions

401(k) Contributions (max if age 50+) $24,500

Profit Sharing Contributions $16,500

Cash Balance Contributions $100,000

Total Tax Deferred Contributions $141,000

Taxes Saved $52,170


Choosing the Best Plan for your Business

There are many ways to save for retirement. Our firm enjoys helping people choose the best plan based on what they want/need to save. Some use a Roth IRAs or Traditional IRAs while others use SEP IRA’s. Solo 401(k) plans have become popular as costs to administer plans have decreased and technology has made them user friendly.

Being a successful business owner is hard, and knowing all of the retirement plan options available likely isn’t what made your business successful, but having one that fits your needs will impact your future.

If you have questions about what plan is best for your personal situation or are interested to learn more about Cash Balance retirement plans – send me a note.  

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