Cash Balance Plans for Business Owners

Cash Balance Plans

Accelerate Your Retirement Savings

As your business becomes more successful, traditional retirement plan contribution limits may begin to feel restrictive. A Cash Balance Plan can provide certain business owners with an opportunity to make significantly larger retirement contributions while potentially reducing current taxable income.

But higher contribution potential also comes with greater complexity and commitment. The question is whether a Cash Balance Plan makes sense for your business, your cash flow, and your long-term financial goals.

At Andstead Advisors, we help business owners evaluate that decision as part of a broader retirement and financial strategy.

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Why Consider a Cash Balance Plan?

For established business owners who are earning significant income and want to accelerate retirement savings, a Cash Balance Plan can create opportunities beyond those available through a 401(k) or Profit Sharing Plan alone.

Cash Balance Plans are defined benefit plans, which means contributions are determined based on the retirement benefit the plan is designed to provide. Factors such as age, compensation, and plan design can result in substantial contribution opportunities, particularly for older or highly compensated business owners.

For the right business, a Cash Balance Plan can help increase retirement savings, create potential tax advantages, and provide another way to offer meaningful retirement benefits while building wealth outside of the business.

When a Cash Balance Plan May Make Sense

Cash Balance Plans tend to work best when a business has reached a level of stability where larger, ongoing retirement contributions fit comfortably within its financial picture.

We look at the consistency of business income and cash flow, the owner's age and retirement timeline, existing retirement savings, employee demographics, and how much the owner would ultimately like to accumulate outside of the business. Because these plans generally involve greater funding commitments than other retirement plan options, we also consider whether those contributions are likely to remain sustainable as the business evolves.

The goal isn't simply to maximize a contribution. It's to determine whether making that contribution supports what you're ultimately trying to accomplish.

How Andstead Helps

Determine Whether the Opportunity Fits

A Cash Balance Plan can be extremely valuable in the right circumstances, but it isn't appropriate for every business. We help evaluate the potential benefits alongside the financial commitment, your existing retirement plans, and your broader personal financial strategy.

Coordinate the Plan Design

Cash Balance Plans require specialized plan design and administration. We work alongside third-party administrators and other professionals to help evaluate different plan structures and coordinate a strategy around the goals of the business owner and the needs of eligible employees.

Integrate Your Retirement Strategies

Cash Balance Plans are often used alongside a 401(k) and Profit Sharing Plan. We help look at those plans collectively, considering how contributions, business cash flow, taxes, and your personal retirement goals work together.

Plan Beyond the Business

For many successful business owners, a Cash Balance Plan can also help address a larger planning question: How do I begin moving more of the wealth I've built through my business into assets intended to support my life outside of it?

Explore Other Retirement Strategies for Business Owners

Different stages of business ownership can call for different retirement strategies.

Solo 401(k) Plans

Explore a flexible retirement plan designed for self-employed individuals and owner-only businesses.

Solo 401(k) Plans

Business Owner Solutions

See how Andstead coordinates retirement planning with your business, investments, tax considerations, succession planning, and personal wealth.

Business Owner Solutions

Profit Sharing Plans

Learn how Profit Sharing Plans can provide flexibility in employer contributions while supporting both owners and employees.

Profit Sharing Plans

Frequently Asked Questions

1. What is a Cash Balance Plan?

A Cash Balance Plan is a type of defined benefit retirement plan. Rather than allowing participants to choose how much they contribute, the plan is designed around a specified retirement benefit, with required contributions calculated to help fund that benefit.

2. Who is a good candidate for a Cash Balance Plan?

Cash Balance Plans may be particularly attractive to established business owners with consistent income who want to save substantially more for retirement than they can through a 401(k) alone. Age, compensation, employee demographics, cash flow, and retirement goals all influence whether a plan is appropriate.

3. How much can I contribute to a Cash Balance Plan?

There isn't one contribution limit that applies equally to every participant. Contribution amounts are determined through actuarial calculations and depend on factors including age, compensation, the plan's benefit formula, and existing retirement benefits.

4. Can I have a Cash Balance Plan and a 401(k)?

Yes. Cash Balance Plans are often paired with a 401(k) and Profit Sharing Plan. Combining plan types can create additional retirement savings opportunities, although the plans need to be carefully designed and administered together.

5. Do I have to contribute to a Cash Balance Plan every year?

Cash Balance Plans generally involve an ongoing funding commitment. Contributions can vary based on actuarial calculations and plan performance, but they typically do not offer the same year-to-year discretion as a Profit Sharing Plan. This is one reason predictable business cash flow is an important consideration before establishing a plan.

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What is the best retirement plan for a small business owner?

Learn how to choose the best retirement plan for your business. Compare Solo 401(k)s, SEP IRAs, and Profit Sharing Plans to determine which option best aligns with your goals, employees, and tax strategy.

Our Process

We create strategies that are tailored to your needs and goals.

Explore What's Possible Beyond Your 401(k)

If you're already maximizing your existing retirement plan and looking for additional ways to build wealth outside of your business, a Cash Balance Plan may be worth exploring.

From our Denver Tech Center office, Andstead works with business owners throughout Colorado and across the country to evaluate sophisticated retirement plan strategies within the context of their broader financial goals.

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