What Is a Cash Balance Plan? A Guide for Business Owners

Unlike a 401(k), where contributions are limited by employee deferrals and profit-sharing caps, a Cash Balance Plan defines a hypothetical account balance for each participant. An enrolled actuary calculates how much the business must contribute each year to fund those balances toward a retirement target.

Contributions are made by the employer, are generally tax-deductible to the business, and grow tax-deferred until withdrawal. For profitable business owners in their peak earning years, this structure can dramatically accelerate retirement savings while reducing current-year tax liability.

Cash Balance Plans are most common among owners of professional practices, partnerships, and closely held businesses with consistent high income - often $300,000 or more annually. They work best when the owner can commit to funding the plan for several years and when employee census costs can be managed through plan design.

Montreux designs Cash Balance Plans in coordination with your broader investment, tax, and estate strategy - not as a standalone product.

Cash Balance Plans require annual contributions determined by an actuary, ongoing compliance, and a multi-year commitment. They are not appropriate for every business. Illustrations and examples are for educational purposes only and do not constitute tax, legal, or investment advice.