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Cash Balance Plan

A qualified retirement plan that allows significantly larger tax-deferred contributions than traditional 401(k)s, enabling high-income entrepreneurs to defer $300,000 or more annually while building retirement wealth.

Vehicle Source: Billionaire Wealth Strategies Verified: 2026-04-07

Definition

A Cash Balance Plan is a type of defined benefit retirement plan that allows business owners to make significantly larger tax-deferred contributions than any other retirement vehicle. While a 401(k) caps contributions at $23,500 per year (2025), a Cash Balance Plan can allow $300,000 or more annually, all on a tax-deferred basis.

How It Works

Unlike a 401(k) where the contribution limit is fixed, Cash Balance Plan limits are based on the participant's age and target retirement benefit. Older participants can contribute more because they have fewer years until retirement. The plan defines a hypothetical account balance that grows with annual contribution credits and guaranteed interest credits.

The business funds the plan with tax-deductible contributions. The deduction flows through to reduce the owner's taxable income. Funds grow tax-deferred until retirement, at which point distributions can be taken as a lump sum or converted to an annuity.

Cash Balance Plans can be layered on top of a 401(k) with profit sharing, creating a combined deferral structure that shelters substantial income from current taxation.

When Entrepreneurs Use This

High-income business owners aged 45+: Contribution limits increase with age, making this most powerful for entrepreneurs in their peak earning years
Consistent high-income businesses: The plan requires consistent annual funding, so businesses with volatile income may face challenges
Pre-exit planning: Funding a Cash Balance Plan in the years before a business sale reduces taxable income during the highest-income period
Professionals with few employees: The plan design can be optimized to maximize the owner's benefit relative to employee costs

Dew Wealth Perspective

Many entrepreneurs Dew Wealth works with have no idea that this level of tax deferral is available. Their CPAs recommend standard 401(k) contributions because that is what they know. A Tax Planner, by contrast, recognizes that a Cash Balance Plan is one of the most powerful deferral tools in the DEAPR framework, specifically under the "D" (Defer) component.

The Linchpin Partner coordinates the plan design with a third-party administrator, ensures the business cash flow supports the funding requirements, and integrates the deferral with the broader tax strategy.

Frequently Asked Questions

How much can I actually contribute?

Contribution limits depend on age and plan design. For entrepreneurs aged 50-60, annual contributions of $200,000-$400,000 are typical. An actuary determines the specific limit based on your situation.

What about my employees?

The plan must cover eligible employees, but the design can be structured to maximize the owner's benefit. Employee costs are typically a fraction of the owner's contribution and are themselves a tax-deductible business expense.

Can I combine this with a 401(k)?

Yes. A Cash Balance Plan layered with a 401(k) profit-sharing plan creates the maximum possible tax deferral for business owners.

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