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Cash Balance Plans

Plan sponsors looking for a way to save beyond standard 401(k) limits and interested in additional tax deductions may be interested in exploring a Cash Balance Plan.


What is a Cash Balance Plan?

Cash Balance Plans are a type of defined benefit or pension plan. They typically work in tandem with an employer’s 401(k) plan and the arrangement is often called a “Combo Plan.” 


Cash Balance Plans are similar to a 401(k) plan in that they provide participants their benefit through a “hypothetical” account.  The hypothetical account is equal to the sum of the contribution credits plus interest credits.  The account is hypothetical because unlike a 401(k) plan where each participant has a specific amount of assets allocated to their account, all assets in a cash balance plan are pooled and used to pay benefits as they become due.


Key Advantages

Some key advantages for a plan sponsor of a cash balance plan are higher contribution limits, larger tax deductions, catching up on delayed retirement savings and attracting and retaining talented employees.


2023 Maximum Contribution Limits


* This amount varies depending on your company’s particular demographics

Who typically makes a good candidate for a Cash Balance Plan?

  • Small to mid-size businesses and professional practices that have predictable cash flow and profitability and are looking for ways to reduce taxable income.

  • Age 40+ business owners who have not saved meaningfully for retirement and need to accumulate significant retirement savings over a shorter period of time.

  • Businesses recruiting young professionals who would appreciate an employer-funded retirement benefit. 

  • Individuals who are earning significant income from serving on boards of directors or consulting and who want to save this income and reduce their taxes.

  • Independent contractors or owner-only businesses with steady income who want to accelerate retirement income savings.

  • Principals seeking a tax deduction of more than $58,000 or making more than $290,000 per year.

  • Successful family and closely held businesses.

  • Medical groups, engineers, CPAs, financial advisers, law firms and other professional groups.


When doesn’t a Cash Balance Plan work well?

  • The business owner is generally younger than the workforce

  • A contribution limit of $66,000 to $75,000 is acceptable to the owners

  • The business owner does not want to take on investment risk for the plan or make a commitment to an annual contribution.

A combo plan can be an impressive way to accumulate more savings for retirement and amplify tax deductions.  We are happy to help you, your financial adviser and CPA evaluate this option and determine if it is an appropriate solution.


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