Cash Balance Plans: A Powerful Retirement Strategy for High Earners

As a high-income professional or business owner, you may be looking for additional ways to save tax-efficiently for retirement beyond traditional plans—like 401(k)s or IRAs—especially after maximizing annual contributions. You may also be asking yourself how you can reduce your annual tax burden both at the business and personal levels.  This is a where a unique and powerful type of retirement plan, called a Cash Balance Plan, could be a compelling solution to consider. With a Cash Balance Plan, you can significantly increase the amount you put away for retirement tax-deferred while also providing the potential for an attractive tax deduction.

Let’s dive in to what a Cash Balance Plan is, how it works, the advantages and drawbacks, and who should seriously consider implementing one.

What Is a Cash Balance Plan?

A Cash Balance Plan is a type of defined benefit retirement plan that combines features of both traditional pensions and defined contribution plans like a 401(k). It’s often described as a “hybrid” retirement plan because it provides the predictability of a pension with the flexibility and portability of a 401(k).

Unlike a traditional pension, where the benefit is expressed as a monthly income stream in retirement, a Cash Balance Plan defines the promised benefit as a hypothetical account balance. This balance grows annually in two ways:

1. Pay Credit – typically a percentage of your salary (e.g., 5%–10%).
2. Interest Credit – either a fixed rate (e.g., 5%) or a variable rate tied to a benchmark like the 30-year Treasury.

These plans are IRS-qualified and subject to funding requirements and actuarial calculations, meaning you must make consistent contributions each year based on formulas and projections.

Cash Balance Plan investments are managed as one pool, usually with the guidance of a professional and qualified financial advisor, compared to a defined contribution plan (i.e., 401k) where the participant is responsible for management of their retirement assets. While the plan is managed as one pool, each participant is allocated an account balance that is recorded each year by a Third Party Administrator.  If the participant retires or leave the company, the participant can either elect to take a retirement income annuity for their vested amount or rollover the vested balance into another qualified plan such as an IRA.

Given the requirements and nuances of cash balance plans, it is highly advised for plan sponsors to partner with an experienced financial advisor who fully understands the complexities and even specializes in the management of Cash Balance Plans, such as our team at Tenet.

How Cash Balance Plans Work Alongside 401(k)s

One of the key advantages is that a Cash Balance Plan can be stacked on top of an existing 401(k)/Profit Sharing Plan, allowing much higher total retirement contributions.

For 2025, the contribution limits are:

• 401(k) with Profit Sharing Plan: up to $76,500 for those age 50+ (including catch-up contributions) – of which $23,500 is the maximum for how much a participant can save/defer themselves and the remainder being employer-based contributions such as a match and/or profit sharing
• Cash Balance Plan: contributions can range from around $60,000 to over $300,000 per year, depending on your age and income.

This makes Cash Balance Plans especially attractive for high-income earners in their peak earning years who want to significantly ramp up their retirement savings. These contributions not only grow tax-deferred, but they also provide a significant tax deduction for the business/business owner.

Example of a Cash Balance Plan in Action

Let’s assume a high-earning business owner that is age 55 and makes $200,000 per year.  They have been maxing out their 401k plus maxing out employer contributions from a match and profit sharing, totaling $76,500 (2025).

Cash Balance Plans are age-weighted, so older business owners can contribute more. At age 55, current IRS guidelines allow for a maximum annual contribution of around $180,000–$200,000 depending on plan design and actuarial assumptions.  For this example, let’s assume a $175,000 contribution:

Combined Retirement Contributions

Tax Deduction & Savings

The full $175,000 cash balance plan contribution is tax-deductible to the business, reducing taxable income:

Assuming a combined federal and state tax rate of ~40%, the business owner saves approximately $70,000 just from the cash balance plan contribution alone.

Pros of Cash Balance Plans

1. Massively Increased Contribution Limits

Unlike 401(k) plans capped at relatively modest annual limits, Cash Balance Plans allow for six-figure contributions—especially beneficial for those age 45 and older.

2. Significant Tax Deductions

Contributions are tax-deductible for the business, reducing taxable income for the practice or business owner. This can create meaningful annual tax savings.

3. Accelerated Retirement Savings

For individuals who started saving later in life or who need to “catch up,” these plans provide a structured way to build retirement wealth quickly.

4. Attractive to Key Employees

Offering a Cash Balance Plan can be a powerful tool for retaining top talent, particularly in small businesses, medical practices, or dental groups.

5. Creditor Protection

As a qualified retirement plan under ERISA, assets in a Cash Balance Plan generally receive strong protection from creditors.

Cons of Cash Balance Plans

1. Required Annual Contributions

Once implemented, you are expected to make consistent contributions each year. Skipping a year isn’t typically an option without risking penalties or plan disqualification.

2. Administrative Complexity

Cash Balance Plans require ongoing actuarial analysis, annual filings, and strict compliance with IRS regulations. This adds a layer of cost and complexity.

3. Limited Flexibility

The contribution amounts are calculated using actuarial assumptions and depend on your age and salary. They are not entirely discretionary like 401(k) deferrals.

4. Costs to Administer

The cost associated to setup and administer a Cash Balance Plan through a Third Party Administrator is generally higher than the cost to administer a 401k plan and is usually several thousands of dollars depending on the provider. With that being said, the value and tax benefits of establishing and contributing to a Cash Balance Plan far exceeds the higher cost associated.

Who Should Consider a Cash Balance Plan?

Cash Balance Plans aren’t for everyone, but they can be an ideal fit for certain high-earning professionals and business owners.

Best Fit:

• Dentists, physicians, law and accounting practices, and other high-income business owners earning over $250,000 per year
• Entrepreneurs or small business owners in stable, profitable businesses
• Individuals age 45+ with low existing retirement plan balances
• Businesses with 15 or fewer employees
• High earning small business owners who are already maxing out their 401(k) and want to contribute more
• Those looking for substantial tax deductions and long-term retirement planning

Situations Where It May Not Be Ideal:

• Startups or businesses with inconsistent cash flow
• Owners with a high number of employees (due to required employee funding)
• Younger professionals with long time horizons and lower income needs

Tax Planning Opportunities

When structured properly, Cash Balance Plans can unlock powerful tax-planning opportunities. By layering a Cash Balance Plan on top of your 401(k)/Profit Sharing Plan, it’s possible to defer hundreds of thousands of dollars in taxes annually while growing retirement wealth.

In fact, many high-income professionals use this as a multi-year tax strategy—contributing heavily during high-income years, then winding the plan down before retirement or business transition.

Portability and Plan Termination

Although these are technically defined benefit plans, Cash Balance Plans are portable. Once you retire or leave the practice, the hypothetical account balance can typically be rolled over to an IRA, where it continues to grow tax-deferred and becomes subject to the usual RMD rules.

If a plan is terminated, the vested balances are distributed to participants, often through a lump sum rollover.

How to Get Started

Implementing a Cash Balance Plan involves several steps:

1. Work with a financial advisor and Third Party Administrator that specializes in Cash Balance Plans to determine feasibility based on your income, goals, and staff structure.
2. Design the plan to align with your financial objectives—considering age, ownership structure, and employee demographics.
3. Coordinate with your CPA and financial advisor to model out tax implications and ensure cash flow aligns with funding needs.

This is not a do-it-yourself solution. A well-coordinated team of experts—financial planner, actuary, and tax advisor—is essential to make the most of this strategy.

Final Thoughts

For high-income dentists, physicians, and business owners who are looking to supercharge their retirement savings and reduce their tax bill, a Cash Balance Plan offers one of the most powerful tools available.

While there are complexities and costs to consider, the long-term financial benefits can be astronomically beneficial for the right fit.

At Tenet Wealth Partners, we help successful professionals and business owners design and integrate advanced retirement strategies like Cash Balance Plans into their broader financial picture. Please don’t hesitate to contact us or set up a time to meet with us to discuss if this type of plan could be a good fit to consider for your situation.

Investment Advisor Representative of Sanctuary Advisors, LLC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

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