Cash Balance Plan: The “Super-Sized” Retirement Shelter
Tax Tips / Business Owner
Cash Balance Plan: The “Super-Sized” Retirement Shelter
๐ก Executive Summary
- Problem: Standard 401(k) limits (~$69k) are too low for high-income business owners earning $500k+.
- Solution: A Cash Balance Plan (Hybrid Defined Benefit) allows you to contribute $200k – $400k+ annually.
- Result: Massive reduction in current taxable income (37% savings) + accelerated retirement funding.
โ ๏ธ EMPLOYEE COST CHECK
This is a “Qualified Plan,” meaning you cannot just fund yourself. You generally must contribute ~5-7% of staff salary to employees. The math works best if the owner’s share is >85% of total contributions.
This is a “Qualified Plan,” meaning you cannot just fund yourself. You generally must contribute ~5-7% of staff salary to employees. The math works best if the owner’s share is >85% of total contributions.
For successful Medical Practices, Law Firms, and Consultancies (Tier L2), the biggest expense is often Income Tax. The Cash Balance Plan is essentially a “Tax-Deductible Savings Account” that leverages your age and income to crush your AGI.
๐ง Core Mechanic: Age-Weighted
Unlike a 401(k) where limits are flat, Cash Balance limits increase with age. The closer you are to retirement, the more the IRS allows you to “catch up.” A 60-year-old can stash nearly $400k/year.
Unlike a 401(k) where limits are flat, Cash Balance limits increase with age. The closer you are to retirement, the more the IRS allows you to “catch up.” A 60-year-old can stash nearly $400k/year.
Performance Simulation
Tax Deduction Capacity (Age 55)
Standard 401(k) + Profit Sharing
~$76,500 Limit
Good
Combo: 401(k) + Cash Balance
~$326,000 Limit
4x Power
Contribution Limits by Age (Estimates)
| Age | Cash Balance Limit | Total Deductible (w/ 401k) |
|---|---|---|
| 40 Years Old | ~$90,000 | ~$166,000 |
| 50 Years Old | ~$170,000 | ~$246,000 |
| 60 Years Old | ~$300,000+ | ~$380,000+ |
“If you are writing a check to the IRS for $100,000+, you are effectively choosing to pay the government instead of paying your future self.”
๐ Related BMT Playbooks (Internal)
๐ก๏ธ Advanced: CLAT (The other major tax deduction tool) ๐ Stack Strategy: Combining DAFs with Cash Balance Plans โ Exit Plan: Switching from Income Tax to Capital Gains (QSBS)๐๏ธ Institutional Resources (External)
๐ Legal Text: IRC ยง 412 (Minimum Funding Standards) ๐๏ธ IRS Official: Cash Balance Plan Guide โ๏ธ Dept. of Labor: Fact Sheet on Cash Balance Plans
BMT designs for tax reality, not theory.