Why More Small Business Owners Are Turning to Cash Balance Pension Plans

A High-Impact Retirement Strategy with Major Tax Benefits

As a small business owner, you’re always looking for ways to reduce taxes, build wealth, and take care of your team. One of the most overlooked—but incredibly effective—strategies to accomplish all three is implementing a Cash Balance Defined Benefit Plan.

Think of it as a “supercharged” retirement plan that works alongside your 401(k) to help you defer significantly more income, reduce your current tax bill, and accelerate retirement savings—especially if you're behind.

What Is a Cash Balance Plan?

A cash balance plan is a type of defined benefit plan that behaves like a defined contribution plan (such as a 401(k)). It allows for much larger annual contributions, especially for older business owners, while offering the predictability and structure of a traditional pension.

Unlike a 401(k), which limits your contributions to around $69,000 per year (with profit sharing, for those 50+ in 2025), cash balance plans can allow annual contributions well over $100,000–$300,000, depending on your age, income, and structure.

Top Benefits for Business Owners

1. Substantial Tax Deductions : Contributions are tax-deductible to the business. For high-income owners, this can reduce taxable income by six figures annually.

2. Accelerated Retirement Savings: Perfect for those in their 40s, 50s, or 60s who are behind on saving—or who simply want to maximize what they put away.

3. Works Alongside a 401(k): You can implement a 401(k) and a cash balance plan to turbocharge your savings and deductions.

4. Attract & Retain Top Talent: Offering a pension-style benefit can set your business apart in a competitive hiring market, especially when recruiting high-level employees or partners.

5. Owner-Weighted Design: Plans can be designed to maximize contributions to owners and key employees while still offering compliant benefits to staff.

6. Flexible & Customizable: Though technically a defined benefit plan, cash balance plans allow for a level of flexibility. You can adjust contributions within IRS guidelines and review plan structure annually.

Who Is a Good Fit?

Cash balance plans make the most sense for:

Business owners earning $300,000+ annually
Owners age 40+ who want to accelerate retirement savings
Companies with steady cash flow and few employees, or with a structure that supports owner-focused design
Professional firms: doctors, dentists, attorneys, consultants, and high-income partnerships

A Quick Example

A 55-year-old business owner with strong cash flow could potentially contribute:

$76,500 to a 401(k) with profit sharing

$200,000+ to a cash balance plan → Over $275,000 in total tax-deferred savings per year

That’s a six-figure tax deduction and a serious step-up in retirement planning—without needing to change your lifestyle.

Final Thoughts

If you’re a small business owner tired of being limited by 401(k) contribution caps, or looking for a way to catch up fast, a cash balance plan might be exactly what your business needs.

The setup and administration require expertise, but the tax and retirement benefits can far outweigh the costs. We're here to help you evaluate whether this strategy makes sense for your unique situation.

Want to see what your numbers might look like? Schedule a free consultation or call us at 617-769-2226 to run a custom projection.