How to Embrace Cash Balance Plans in 2024


Imagine increasing your retirement savings while decreasing your tax bill—Cash Balance and Profit Sharing Plans may provide your business with significant benefits, subject to individual circumstances and regulations. In retirement planning, strategic foresight can significantly enhance the effectiveness of saving for retirement while also drastically helping your business today . Advanced retirement plans, like Cash Balance Plans and Profit Sharing Plans, are sophisticated arrangements that can be used to achieve various types of financial goals in different business contexts. This blog post explores the evolving landscape of these plans, highlighting their importance in both business and retirement planning.

Cash Balance Plans: Overview

Cash Balance Plans combine features of both defined benefit and defined contribution plans. Cash Balance Plans often allow for significantly higher contribution limits compared to other retirement plans such as 401(k)s. These higher limits may enable participants, especially those closer to retirement, to rapidly increase their savings, potentially contributing several times more annually than the limits set for 401(k) plans, subject to regulatory guidelines and individual circumstances.

Cash Balance Plans: Plan Mechanics

Each participant has an individual account that grows annually through employer contributions and a predetermined interest credit, which can be fixed or linked to a market index. This structure provides transparent and predictable growth. These plans are increasingly popular due to higher retirement contribution limits and tremendous tax savings potential. Cash balance plans generally work well for highly profitable services businesses (health care practices, CPAs, and other similar professions) but can be applied to almost any type of business if the circumstances are right.

In a Cash Balance Plan, a hypothetical account balance is credited each year with a “pay credit” (a percentage of each participant’s annual salary) and an “interest credit” (either a fixed rate or a variable rate tied to an external index). These credits are not dependent on the plan’s investment performance, which means the investment risks are borne solely by the employer. Upon retirement, employees typically have two options:

  1. receiving their accrued benefits as a lifetime annuity
  2. taking a lump sum that equals the balance in their hypothetical account,

For example – assume that a participant has an account balance of $100,000 when they reach age 65 and retire. This employee could

  • Annuitize the contract: Such an annuity might be approximately $708 a month for life.
  • Take the lump sum: Balance can then be rolled over into an IRA and start making withdrawals

This flexibility allows participants to choose the payout option that best suits their retirement needs. Participants are encouraged to seek professional advice to determine the most suitable payout option.

Cash Balance Plans: Tax Advantages

For employers, Cash Balance Plans offer tax advantages similar to those of traditional defined benefit plans. Contributions to the plan are tax-deductible, and the plan assets grow tax-free. Employers can also use these plans to strategically manage their workforce demographics and succession planning. The plan’s funding obligations are actuarially determined, which can help stabilize pension costs and funding over time.

Importance of Cash Balance Plans in Business Planning

Incorporating advanced retirement plans, such as Cash Balance Plans, into business planning is crucial for leveraging tax advantages and financial flexibility. These plans offer significant tax savings for business owners by allowing them to deduct contributions made to the plans from their taxable income. Furthermore, by enhancing the overall compensation package, these plans serve as strategic tools for attracting and retaining top talent, which can lead to increased productivity and reduced turnover rates.


Advanced retirement plans like Cash Balance and Profit Sharing Plans are more than just retirement savings vehicles—they are a critical component of strategic financial planning for both businesses and individuals. They offer customizable features that can be tailored to meet diverse business needs, making them an essential consideration for anyone looking to enhance their retirement readiness, tax savings, and financial flexibility. Can your business benefit form an advanced retirement plan? Schedule a call with Basilic Financial for a free educational consultation to explore your options.


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