Cash Balance / Defined Benefit Plan
A pension layered on top of a 401(k) that can shelter $100k–$300k+/yr — especially powerful for older, highly profitable owners.
What it is
A defined-benefit pension where each participant has a hypothetical 'account balance' that grows by an annual employer contribution credit plus an interest credit. Unlike a 401(k) (a defined-contribution plan with annual limits), DB contribution limits are based on actuarial math — and they go UP with age.
Why owners love it
A 55-year-old owner can often shelter $200k+/yr in a Cash Balance plan ON TOP of the $70k+ they're already putting in a 401(k) + profit-sharing. All of it is a deduction now and grows tax-deferred.
Who fits
Profitable owner with stable, predictable cash flow ≥ $300k/yr; owner significantly older than the workforce; willing to commit to 3–5 years of consistent funding.
Watch out for
- •Required staff contributions are typically 5–7.5% of pay.
- •Annual actuary fees ($2k–$5k).
- •Underfunding can trigger penalties — needs reliable cash flow.
Educational only — not tax, legal, or investment advice. Talk through your specific situation with a qualified advisor.