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cash balance plan

A Cash Balance plan is an advanced retirement savings plan. It is designed for high-income earners to defer current year taxes and save for their retirement future.
It is best for employers and employees with consistent annual income and stable employees. 

Cash Balance plan


Let's meet Caden and Carlie, they are 50/50 partners in a law firm and have four support staff employees. Caden and Carlie are both 64 years old. They both want to save large amounts per year for their retirement.  

After a plan design analysis, we found that Caden and Carlie can both defer $151,320 per year into their retirement accounts. Then based on the employees, the four support staff will receive a total employer contribution of $17,537 per year.  The amount each support staff receives depends on their age and income. This year, the company can fund the 401(k) and Cash Balance plan with $320,177 and 94.5% of the contribution is going towards the owners. 


Here is an example: 

50/50 OWNERS


Caden defers $151,320

Carlie defers $151,320




Funding amount based on plan design analysis and company census. Annually funded by employer.



Employee 1          $5,864

Employee 2          $3,801

Employee 3          $3,474

Employee 4          $4,398

Employer funding requirement for staff is $17,537 per year. 


The annual employer contribution will adjust per year based on the group of eligible employees average salary and age.


A Cash Balance plan is a type of employer-sponsored Defined Benefit (DB) retirement plan. However, unlike traditional Defined Benefit plans that provide for a monthly benefit at retirement, Cash Balance plans provide a promised account balance. 


Cash Balance plans are typically paired with a 401(k) plan and funded by the employer. The plan design helps to determine which employees are eligible for employer contributions. The funding requirements and investment risk are based on defined benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination.  Also, the company solely bears all ownership of profits and losses in the portfolio. The changes in the value of the participant’s portfolio doesn’t affect the yearly contribution, which is why consistent company revenue is important. 


The annual account statements provided to the participants resemble a 401(k)/Profit Sharing plan statement. This makes the Cash Balance benefit much easier for employees to understand and is very appreciated by employers looking for tax deferrals and employees saving for retirement.

why have i never heard of this?

Not sure, but we do hear that from many professionals.
Some other common questions are: 

- Is this legal?

Yes. (DOL information here.)

- How much can I put away?

It depends on your age and income. Some earners can save more than $200k per year through a Cash Balance combination plan.

- What's the catch?

No catch. Just a few items that you will need to be aware of. For example, the plan needs to be funded per year. We can discuss what that means and if a Cash Balance plan makes sense for you and your firm.

best suited for

Consistently High Income Earners

Ready to Save

$100k+ per Year

Comfortable with Advanced Plan Design

 for questions on cash balance plans and

to learn if it is right for your company,

contact us for a custom Plan Design Analysis

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