Would a cash balance plan fit your situation?
Six quick questions about your business and your goals. See the factors that matter for a cash balance plan, and where yours line up.
Not sure on one? Pick “I'm not sure” and we'll sort it out with you. There are no wrong answers here.
For educational purposes only.
What this checksShow the full list
Is the business consistently profitable, and do you expect that to continue?
- Yes, consistently profitable. Steady profits are the foundation. A cash balance plan requires funding most years, so this matters most.
- Profitable, but it varies year to year. Variable profits are workable with a wider funding range, but that is the first thing to design around.
- Not consistently. A cash balance plan expects regular funding. Uneven profits make it harder to commit to.
Are you already maxing out your 401(k) and profit sharing?
- Yes, both are maxed. Maxing the 401(k) first is the usual signal that a cash balance plan is the next lever.
- Not yet maxing them. There may be room in the 401(k) and profit sharing before a cash balance plan is the next step.
- No 401(k) yet. A cash balance plan almost always pairs with a 401(k). That is usually where to start.
- I'm not sure. No problem. We can look at what you are putting in now and where the room is.
What is the owner's age (the owner who wants to save the most)?
- 60 or older. Older owners can fund the most, because the plan funds a benefit over fewer years.
- 50 to 59. A common sweet spot. Age-based funding lets you shelter a large amount each year.
- 40 to 49. The plan still lets you save well beyond a 401(k); the ceiling climbs as you get older.
- Under 40. The extra room over a 401(k) is smaller at younger ages, though it can still be worth it.
What are you hoping a plan like this could do?
- Let the owners save a lot more for retirement. That is the core reason owners add a cash balance plan on top of a 401(k).
- Create a larger tax deduction for the business. In a profitable year, the contribution is generally deductible and can be sizable.
- Reward a small group of key people. Plan design can tilt toward owners and key people, within IRS testing rules.
- Still exploring. That is what this is for. We can walk through the numbers with you when you are ready.
How many non-owner employees do you have?
- None, just owners or spouse. With no employees, the design is simplest and the owners capture almost all of the funding.
- 1 to 5. Very workable. Employees usually get a contribution, often around 5% to 7.5% of pay, to pass testing.
- 6 to 20. Doable. The employee contribution becomes a bigger part of the picture we would map for you.
- More than 20. Still possible. The employee contributions are a larger piece to design around, which we would model.
How steady is the business's cash flow from year to year?
- Very steady. Steady cash flow is the best backdrop, since the plan is funded most years.
- Mostly steady, with some swings. Workable. We design the funding range with room for the swings.
- It swings a lot. Big swings are the main thing to design around, since the plan expects regular funding. We build in flexibility.
Common questions
Who is a cash balance plan a good fit for?
Owners with strong, steady profits who have already maxed their 401(k) and want to shelter more, especially those in their 40s, 50s, or 60s. It fits professional practices and profitable small businesses well. The right answer depends on your numbers, which an advisor and actuary would model.
How much can a cash balance plan save in taxes?
It depends on your age, income, and employees. Contributions are generally deductible to the business, and for a profitable owner the yearly amount can run well into six figures on top of the 401(k). The exact figure has to be modeled with an actuary.
Do I need a 401(k) to have a cash balance plan?
Almost always, yes. A cash balance plan is typically paired with a 401(k) and profit sharing so the combined plan passes IRS testing and the owners can maximize their own contributions.
Does this tool tell me whether to open one?
No. It lays out the factors that matter for your profile so you can weigh them. It is educational, not a recommendation. A ClearMind advisor, with a TPA and an enrolled actuary, would model your actual situation before anything is decided.
This page is general information for people exploring our services and is not investment, tax, or legal advice or a recommendation for any specific person or situation. The examples are illustrative, are not based on actual clients, and are not a promise of results. Strategies such as S-corp elections, backdoor and mega-backdoor Roth contributions, equity-comp decisions, and deferred compensation depend on your specific situation and current law, so confirm the details with a qualified professional before acting. ClearMind Capital LLC is a registered investment adviser; registration does not imply a certain level of skill or training. Past performance is not indicative of future results.
