When it comes to retirement planning, most people think of 401(k)s and IRAs. However, for high-income earners and business owners looking for a tax-efficient way to accelerate their savings, cash balance plans may offer a powerful solution. These hybrid retirement plans combine the best features of defined benefit plans (like pensions) and defined contribution plans (like 401(k)s), providing an advanced retirement savings strategy that offers tax advantages and predictable growth.
What Is a Cash Balance Plan?
A cash balance plan is a type of defined benefit plan that functions much like a traditional pension plan but with an important twist: it provides participants with an individual account balance, similar to a 401(k). Unlike a 401(k), the employer contributions are based on a predetermined formula, typically as a percentage of salary or a fixed dollar amount. These contributions can grow at a fixed crediting rate, making the cash balance plan a stable and predictable way to build retirement wealth.
How Much Can I Contribute to a Cash Balance Plan?
2025 Contribution Limits: 401(k), 401(k) with Profit Sharing and Cash Balance Plans
| Age | 401(k) only | 401(k) with Profit Sharing | Cash Balance | Total | Tax Savings* |
| 66-70 | $31,000 | $77,500 | $383,000 | $460,500 | $207,225 |
| 60-65 | $31,000 | $77,500 | $342,000 | $419,500 | $188,775 |
| 55-59 | $31,000 | $77,500 | $280,000 | $357,500 | $160,875 |
| 50-54 | $31,000 | $77,500 | $218,000 | $295,500 | $132,975 |
| 45-49 | $23,500 | $70,000 | $170,000 | $240,000 | $108,000 |
| 40-44 | $23,500 | $70,000 | $132,000 | $202,000 | $90,900 |
| 35-39 | $23,500 | $70,000 | $103,000 | $173,000 | $77,850 |
| 30-34 | $23,500 | $70,000 | $81,000 | $151,000 | $67,950 |
*(Plan Limits) $23,500 for 401(k) plan; $7,500 catch-up (age 50 or older); $46,500 profit sharing. Amounts shown in the chart do not include the additional catch-up contributions for participants age 60-63. This hypothetical chart assumes a 45% tax bracket of combined federal and state taxes and taxes are deferred. For additional assumptions used in this chart, please go to cashbalancedesign.com/resources/contribution-limits/.
Key Benefits of a Cash Balance Plan
✅ Ideal for Business Owners & High Earners
Cash balance plans are particularly valuable for business owners, professionals, and high-income earners (like doctors, lawyers, and consultants) who want to reduce tax liabilities while increasing retirement contributions.
✅ Significant Tax Advantages
Contributions to a cash balance plan are tax-deductible for businesses, which helps lower taxable income while allowing both business owners and employees to build significant retirement savings.
✅ Higher Contribution Limits
Unlike traditional 401(k)s, which have limited annual contribution caps, cash balance plans allow for substantially higher contributions, particularly for older participants who are looking to catch up on retirement savings.
✅ Predictable & Stable Growth
A cash balance plan can offer different interest crediting rate options*, allowing for consistent growth in your retirement savings, even during market downturns or volatility.
Is a Cash Balance Plan Right for You?
While these plans may be more complex and have higher costs to administer compared to traditional plans, cash balance plans can be are particularly beneficial for high-earners and business owners who are already maxing out their 401(k)s and want to contribute more toward retirement in a tax-advantaged way. They work best for business owners with steady cash flow and those looking for a structured retirement savings vehicle with significant tax deductions.
If you’re interested in learning more about cash balance plans and how they can accelerate your retirement savings, contact Banyan Wealth today to determine if this powerful retirement savings tool aligns with your long-term goals.
*As set forth in, and subject to, applicable agreements.
This material has been prepared for informational and illustrative purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.