Defined Benefit Plan

Cash Balance Plans

Defined Benefit Plan for Highly Compensated Business Owners

A cash balance plan is a type of Defined Benefit Plan which allows for individuals to make very high tax-deferred contributions to their retirement and usually for self-employed or small business owners over who are looking to make large retirement plan contributions.


Cash balance plans do require a Third-Party Administrator (TPA) and a plan actuary that will administer the plan and make IRS filings.


We recommend that your CPA or tax advisor work directly with the Third-Party Administrator (TPA) to make sure you are following all the IRS codes regarding the cash balance defined benefit plan.

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Cash Balance Plan Calculations

Pay Credit

The formula that is a percentage of the participants compensation that is credited to the participants cash balance plan each year.

Investment Credit

Fixed or variable formula defined in the plan adoption agreement that is linked to a particular index, such as the one-year treasury bill or 30-year Treasury Note.

Investment Risk

The investment risks are sole borne by the employer, the increases and decreases of the investments inside of the cash balance plan do not directly affect the yearly participant benefit amounts.

Common cash balance plan questions


Have a question? Contact us.


  • What is a Cash Balance Plan?

    A Cash Balance Plan is a type of defined benefit pension plan that allows for significantly higher contribution limits compared to traditional 401(k) or profit-sharing plans. It is ideal for high-income earners, business owners, and self-employed individuals looking to maximize retirement savings and reduce taxable income.

  • How does a Cash Balance Plan work?

    A Cash Balance Plan functions like a hybrid pension plan. Employers contribute to the plan on behalf of employees, and the balance grows based on a pre-set interest credit rate. Unlike traditional pension plans, participants have individual account balances, making it easier to understand projected benefits.

  • Who is eligible for a Cash Balance Plan?

    Business owners, professionals (such as doctors, attorneys, and consultants), and self-employed individuals with high, stable income often benefit the most from Cash Balance Plans. Even small businesses with a few employees can implement a plan with the help of a Third-Party Administrator (TPA).

  • What are the contribution limits for a Cash Balance Plan in 2025?

    Cash Balance Plans offer the highest contribution limits in the IRS code, and limits vary based on age and compensation. Contributions can range from $75,000 to over $300,000 per year, depending on factors such as age, income, and plan design.


    For example:

    • A 40-year-old may be able to contribute around $100,000 per year.
    • A 55-year-old may be eligible to contribute $250,000+ per year.
    • A 60-year-old could contribute $300,000+ per year.

  • What are the tax benefits of a Cash Balance Plan?

    Cash Balance Plans offer major tax advantages, including:

    • Tax-deferred growth: Contributions grow tax-free until withdrawal.
    • Business tax deductions: Contributions are tax-deductible for employers, significantly reducing taxable income.
    • Estate planning benefits: The plan can be used to accumulate substantial retirement savings while deferring taxes.

  • What are the administrative requirements and costs?

    Cash Balance Plans require ongoing compliance with IRS and Department of Labor regulations, including annual actuarial certifications. Due to their complexity, employers must hire a Third-Party Administrator (TPA) to handle:

    • Plan design and setup
    • Annual IRS filings and compliance testing
    • Actuarial calculations and funding requirements
    • While administrative costs are higher than those of traditional 401(k) plans, the tax savings and contribution potential often outweigh the expenses.

  • What are the distribution rules for a Cash Balance Plan?

    Cash Balance Plans have specific distribution rules, including:

    • Required Minimum Distributions (RMDs): Must begin by April 1 of the year after turning age 73.
    • Lump sum or annuity options: Participants can take a lump sum rollover to an IRA or receive lifetime annuity payments.
    • Tax implications: Distributions before age 59½ may be subject to a 10% early withdrawal penalty unless rolled into another qualified plan.