IRC §401(a), IRC §415(b)

Cash Balance Plan

A defined benefit plan allows dramatically higher annual contributions ($100,000–$300,000+) than a 401(k), sheltering that income from tax today. The savings are a deferral, not an elimination — contributions reduce your taxable income now, but distributions in retirement are taxable as ordinary income.

The net lifetime benefit depends on your current vs. retirement tax bracket. This is a long-term commitment: once established, annual contributions are mandatory regardless of business performance.

Who this may apply to

Business owner with consistent high income
Willing to commit to annual funding for 3-5+ years
Want to shelter $100,000+ per year from taxes
Approaching retirement age (higher contribution limits)

Strategy connections

Works well with

Solo 401(k) / SEP-IRA Optimization: Can be designed alongside a defined contribution plan subject to plan limits and testing.
S-Corporation Election: W-2 compensation can affect plan benefit calculations.

What could block this

Cash flow is not stable enough to support required funding
Employee coverage and testing costs outweigh the benefit
The expected funding period is too short

Important considerations

Annual contributions are MANDATORY — if your income drops, you are still required to fund the plan or face costly plan amendments or termination
Plan termination requires IRS approval and can take 1–2 years
Administration costs run $1,500–$5,000/year — only worthwhile if your contribution level justifies it (typically $80,000+ annually)
If you have employees, you may be required to offer them similar benefits — get a census of your workforce before proceeding

Professional support

Retirement Plan Actuary + CPA

Will design the plan, calculate contribution levels, and ensure compliance with IRS requirements.

Timing

Must be established by December 31 of the tax year. Contributions are due by the corporate tax filing deadline (including extensions). Expect 4–8 weeks to set up — start no later than October if targeting the current year.

Official sources

Reviewed 2026-07-24