Lesson · Retirement · tax

Shelter six figures a year, deductibly.

A cash balance plan is a defined-benefit plan that lets high-earning business owners contribute — and deduct — far more than a 401(k) ever could.

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$92,500

TAX DEFERRED ON A $250,000 CONTRIBUTION AT A 37% MARGINAL RATE

SIDE BY SIDE

401(K) VS CASH BALANCE

~$80K cap at 50-plusSix figures possible

You pick the amountActuary sets the amount

You take the riskEmployer takes the risk

Skip a year, no issueExpected every year

Key points

WHO ACTUALLY QUALIFIES

✓

STABLE, PROFITABLE INCOME

✓

OWNER 45 AND UP

✓

ALREADY MAXING THE 401(K)

✓

CAN FUND MULTIPLE YEARS

✓

W-2 EMPLOYEES ARE FINE

✓

ANY INDUSTRY, NOT JUST MDS

How it works

FUND LAST YEAR, THIS YEAR

ADOPT THE PLAN DOCUMENTSigned plan plus a trust tax ID

SEND THE CONTRIBUTIONCash sitting in the trust account

BEAT YOUR FILING DATEExtensions count, prior-year deduction

THE FINE PRINT

WHAT IT COSTS YOU

Employer money onlyNo employee deferrals

3-year cliff vestingLeave early, forfeit

Employees get a shareTesting must pass

Annuity must be offeredLump sum still allowed

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The Cash Balance Plans field guide — one page

The strategy, the checklist, the key numbers, and links to the actual tax code. Print it, take it to your CPA. Free, no strings.

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Field guide · PDF

Cash Balance Plans

Cliff notes + checklist + the law

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The law behind it

Primary sources

Verify against the source before you rely on it. This is education, not legal or tax advice.

26 U.S.C. Sec. 401(a) — Qualified defined-benefit plans — the category a cash balance plan falls under.law.cornell.edu/uscode/text/26/401

26 U.S.C. Sec. 415 — The limits on benefits and contributions that set how much you can put in.law.cornell.edu/uscode/text/26/415

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