A cash balance plan can dramatically increase what business owners save for retirement.
Paired with a 401(k) and profit sharing plan, a cash balance plan can allow business owners to contribute significantly more toward retirement than a standalone 401(k) permits – an especially powerful option for closely-held firms, professional practices, and owners seeking to reduce current taxable income.
A type of defined benefit plan supported by the Pension Protection Act of 2006, a cash balance plan gives each participant a portable hypothetical account balance. Unlike a traditional pension, balances can typically be rolled into an IRA when a participant leaves.
Advantages
- Significantly more tax deferral than a 401(k) alone
- Fully deductible employer contributions
- Customized design for owner goals and firm demographics
- Works alongside 401(k) and profit sharing plans
- Supports succession and business transition planning
- Portable; balances roll into an IRA upon departure
Who benefits most?
- Closely held and family-owned businesses
- Medical, dental, and professional practices
- Law firms and CPA firms
- Consulting and financial services firms
- Business owners age 45+ with consistent cash flow
Cash Balance Case Studies
Cash Balance Plan Maximizes Tax Deductions for Law Firm Partners
This law firm wanted to implement a cash balance plan to maximize tax deductions for the founding partners and give larger contributions to the junior partners using an advanced profit sharing design. We worked with the firm to maximize each founding partner’s profit sharing and cash balance contributions while providing larger contributions for the junior partners.
Cash Balance Plan Design for Medical Practice Buyout
In this case, the junior partner was looking to buy out the senior partner in a Medical Practice. The HCEs in this medical practice were the Partners and their spouses. HCEs include employees that have at least 5% ownership in the company during the current plan year or the prior plan year regardless of their annual compensation.
Business Owner Seeks to Maximize Retirement Contributions in Pre-Retirement Years
This business owner had delayed saving for retirement and was looking to maximize retirement contributions for himself having not contributed significantly for retirement in prior years.
Cash balance plans can be particularly helpful to owners looking to take equity out of their business in a tax-advantaged way.
The RPG Approach
Cash balance plans are not one-size-fits-all.
RPG works collaboratively with advisors, CPAs, and business owners to evaluate contribution goals, workforce demographics, existing retirement plans, and long-term business objectives before recommending a plan structure.
In-house actuarial and advanced plan design expertise
Coordination with 401(k) and profit sharing plans
Independent, non-producing consulting—RPG never competes with advisors
Customized plan structures, not template-based designs
Collaboration with advisors and CPAs throughout the process
Open architecture flexibility and full fee transparency
Contribution Comparison
How the numbers change with a cash balance combo plan
This table illustrates how annual contributions can increase significantly by age when combining a 401(k), profit sharing, and cash balance plan.
Age |
401(k) only |
401(k) with Profit Sharing |
Cash Balance |
TOTAL |
60-65 |
$25,000 | $62,000 | $256,000 | $317,000 |
55-59 |
$25,000 | $62,000 | $206,000 | $267,000 |
50-54 |
$25,000 | $62,000 | $157,000 | $218,000 |
45-49 |
$19,000 | $56,000 | $120,000 | $175,000 |
40-44 |
$19,000 | $56,000 | $92,000 | $147,000 |
35-39 |
$19,000 | $56,000 | $70,000 | $125,000 |
30-34 |
$19,000 | $56,000 | $54,000 | $109,000 |
Hypothetical illustration. Contribution limits vary by age, compensation, plan design, and IRS rules in effect at time of plan implementation.
Sample Plan Illustration
See how contributions work across owners and staff.
The following example illustrates how a cash balance combo plan can be structured for a small business with two owners and four employees—with the majority of contributions directed toward the owners.
Name |
Age |
Annual Salary |
401(k) |
Profit Sharing |
Cash Balance |
Total Contribution |
Tax Savings |
| Owners | |||||||
| Owner | 61 | $270,000 | $24,000 | $36,000 | $0 to $254,000 | $314,000 | $141,300 |
| Spouse | 56 | $65,000 | $24,000 | $9,750 | $0 to $57000 | $90,750 | $40,838 |
| Subtotals | $335,000 | $48,000 | $47,750 | $311,000 | $404,750 | $182,138 | |
| 4 Staff | |||||||
| Veronica Rowe | 41 | $51,000 | $3,825 | $700 | $4,525 | ||
| Patty Flores | 35 | $41,000 | $3,075 | $700 | $3,775 | ||
| Marc Fitzgerald | 28 | $34,000 | $2,550 | $700 | $3,250 | ||
| Sheldon Sparks | 44 | $21,000 | $1,575 | $700 | $2,275 | ||
| Subtotals | $147,000 | $11,025 | $2,800 | $13,825 | $6,221 | ||
| Grand Totals | $482,000 | $48,000 | $56,775 | $313,800 | $418,575 | $188,359 | |
| Percent of Contribution to Owners: 96.7% | |||||||
Hypothetical illustration. Contribution limits vary by age, compensation, plan design, and IRS rules in effect at time of plan implementation.
See how much more you could be saving.
Every cash balance plan structure is different. RPG’s in-house actuarial team works with advisors and business owners to model a contribution structure built for their specific goals.