Cash Balance Plans: $100K to $300K in Pre-tax Contributions Each Year

A Cash Balance Plan for small business owners can be one the best ways to shelter large amounts of income from taxation each year. Most small business owners are familiar with 401(K) plans, SEP IRA’s, Solo(k) Plans, and Simple IRA’s, but these “DB/DC Combo” plans bring the tax savings for business owners to a whole new level. DB/DC combo plans can allow business owners to contribute $100,000 to $300,000 pre-tax EACH YEAR which can save them tens of thousands of dollars in taxes. In this article I’m going to walk you through: • How cash balance plans and DB/DC combo plans work • Which companies are the best fit for these plans • How the contribution amount is calculated each year • Why an actuary is involved • How long should these plans be in place for? • The cost of maintaining these plans • How they differ from 401(k) plans, SEP IRA, Solo(k), and Simple IRA plans Contact Michael Ruger with Questions: 518-477-6686 or [email protected] Visit our website: https://www.greenbushfinancial.com/ Subscribe to our channel for more financial planning tips:    / @greenbushfinancialgroup   #retirementplans #pensionplan #greenbushfinancial Frequently Asked Questions (FAQs): What is a Cash Balance Plan and how does it work? A Cash Balance Plan is a type of defined benefit plan that allows higher pre-tax contributions than traditional retirement plans. When combined with a 401(k) in a DB/DC combo structure, business owners can contribute $100,000–$300,000 annually, significantly reducing taxable income while building retirement assets. Which businesses are best suited for a Cash Balance or DB/DC combo plan? These plans work best for small businesses with fewer than 20 employees, strong and consistent cash flow, and owners earning $300,000 or more annually. They are especially common among professionals such as doctors, dentists, attorneys, and consultants seeking larger tax deductions. How are contribution amounts determined in a Cash Balance Plan? Contributions are calculated by an actuary and depend on the business owner’s age, compensation, and desired future benefit. Older owners typically qualify for higher contribution limits because they have fewer years to fund their target benefit. Why does a Cash Balance Plan require an actuary? An actuary certifies the plan’s annual minimum funding requirement and ensures compliance with IRS and ERISA rules. Because the employer guarantees a specific benefit, actuarial calculations are needed each year to maintain funding accuracy. How long must a Cash Balance Plan remain in place? The IRS generally requires that the plan stay in place for at least three years. After that period, it can be voluntarily terminated, and funds are typically rolled into a 401(k) or IRA without tax penalties. When are contributions due for a Cash Balance Plan? Contributions are due by the company’s tax filing deadline, including extensions. For most calendar-year businesses, that means the funding deadline falls between September and October of the following year. What are the typical costs of maintaining a Cash Balance Plan? Annual administrative and actuarial fees often range from $4,000 to $7,000 for companies running both a 401(k) and Cash Balance Plan. Despite higher costs, the potential tax savings—often $30,000 or more per year—can far outweigh the administrative expenses. How do Cash Balance Plans differ from 401(k), SEP, and SIMPLE IRA plans? Unlike defined contribution plans with fixed annual limits, Cash Balance Plans are defined benefit plans with much higher potential contribution amounts. They also require actuarial oversight, minimum funding each year, and pooled investments managed by the employer rather than individual accounts.