Expertise you won't find on Main Street


June 4th, 2019

The most surprising thing to me about cash balance plans is how relatively few people are aware of them. Many people are intimidated by the world of retirement planning beyond the 401(k), which means that great opportunities like cash balance plans don’t get the attention that they deserve. Yet many business owners with a high income looking to lighten their tax burden while accelerating the growth of their retirement savings should be vetting cash balance plans.

When combined with a 401(k), cash balance plans substantially increase the dollar limit of top-line deductions that participants may take. In some cases, cash balance plans increase available top-line deductions by over 400%.

This means that participants, particularly older contributors, can accelerate their retirement savings by saving more money than would be possible with just a traditional 401(k). At the same time, participants are taking advantage of significant tax savings.

The way that a cash balance plan works is relatively simple. Often referred to as a “hybrid” plan, a cash balance plan is a defined benefit plan that looks and functions very much like a defined contribution plan. Defined benefit plans most often take the form of pension plans and provide employees with fixed benefits upon retirement. Defined contribution plans, on the other hand, are characterized by regular contributions but less certain future benefits (think 401(k)s and IRAs).

Under a cash balance plan, all contributions are pooled into a shared investment account directed by a trustee. Employees do not choose the level of investment risk as they would with a 401(k), but instead accrue annual contributions and interest at a fixed rate. The investment risk stays with the employer like under a pension plan, but employees receive account statements similar to those that come with a 401(k).

Those who will benefit the most from a cash balance plan include:

  • Professionals with high incomes such as doctors, engineers, lawyers, orthodontists, etc.

  • Business owners over 45 looking to substantially increase their retirement savings in the coming years

  • Highly-profitable companies

  • Business owners wanting to contribute more than the traditional 401(k) limits to their retirement while accruing substantial tax savings

The number of businesses utilizing cash balance plans has exploded since the IRS clarified the rules governing them. You too can easily begin to take advantage of these benefits.

Cash Balance Advisors is a national company with many locations to assist business owners in building a custom cash balance plan for retirement. We are affiliated with an independent group of highly advanced planning professionals. With the use of a cash balance plan, our group of advisors collaboratively develop forward-thinking strategies and work closely with CPAs to help business owners like you with additional top-line deductions for a secure lifestyle that will last well beyond your lifetime.

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