Keep the Benefits, Gain Control: Cash Balance Plan Conversions

A few years ago, one of our clients, let’s call her Sarah, came to us in frustration. She was a 51-year-old business owner, pulling in over $500K a year in profit, maxing out her 401(k), and still writing six-figure checks to the IRS every spring. Her accountant told her she was “doing everything right.”

But deep down, she knew something was off.

“I feel like I’m winning in my business,” she said, “but losing when it comes to taxes. Isn’t there something else I could be doing?”

There was. It was called a Cash Balance Plan, and like most entrepreneurs we meet, she’d never heard of it.

Fast forward two years: Sarah now contributes over $200,000 per year into a retirement plan that dramatically reduces her taxes and builds wealth faster than any SEP or IRA ever could. 

She’s legally lowered her tax bill by over $80,000 a year, and she’s finally playing the same game Fortune 500 execs and high-income professionals have been winning at for decades.

This isn’t a loophole. It’s not a gimmick. It’s an IRS-approved retirement strategy built for business owners like you high earners with limited time, growing teams, and real goals.

In this article, we’re going to show you:

• What a Cash Balance Plan is and how it works

• Why most CPAs never mention it (but why they should)

• Who it’s right for (and when it’s not the best fit)

• How it can unlock massive tax deductions while building real wealth

This isn’t a generic blog post. It’s your invitation to finally take control of retirement and taxes on your terms.

Ready to stop overpaying the IRS and start protecting your profits?

Let’s go.

Retirement Plans 101: Laying the Groundwork

Before we unpack why a Cash Balance Plan might be your missing piece, let’s zoom out. Most business owners have been offered two basic choices for retirement savings:

Defined Contribution vs. Defined Benefit: What's the Difference?

Defined Contribution Plans

Think 401(k)s, SEPs, SIMPLE IRAs.

These plans are like investment buckets. You decide how much to put in each year, and the performance of your investments determines how much you have at retirement. No promises just potential.

Pro: Flexibility and personal control

Con: Limited annual contribution caps and no guaranteed outcome

Defined Benefit Plans

Think traditional pensions or cash balance plans.

These are promise plans. Your business commits to providing a set amount of retirement income, no matter what happens in the markets. Contributions are calculated based on what’s needed to fund that future promise.

Pro: Massive contribution potential and guaranteed retirement benefit

Con: More setup, more rules, more planning required

Where Cash Balance Plans Fit In: The Hybrid Advantage

This is where the magic starts.

A Cash Balance Plan is technically a defined benefit plan, but it looks and feels like a defined contribution plan because it uses something called a “hypothetical account balance.”

Here’s how that plays out:

• You, the business owner, commit to funding a specific annual benefit for yourself (and any eligible employees).

• That benefit is expressed as a growing account balance with “pay credits” (a percentage of salary) and “interest credits” (a fixed or indexed growth rate).

• The IRS sets how much you can contribute, and it’s a LOT more than a 401(k).

• When you retire, you can either take your balance as a lifetime annuity or roll it into an IRA just like a 401(k).

It’s the best of both worlds:

• Predictable, high-limit retirement savings

• Flexible payout options

• Massive tax deductions for high-profit businesses

Why You’ve Probably Never Heard of It: 

CPAs rarely recommend Cash Balance Plans because they’re complex. They require actuarial support, coordination with existing plans, and strategic thinking.

But here’s what most business owners don’t realize:

The complexity isn’t your job to solve. It’s your opportunity to leverage. This is a plan built for entrepreneurs who are playing at a higher level who are tired of leaving money on the table just because no one told them there was another way.

What Is a Cash Balance Plan (in Plain English)?

If a 401(k) and a pension had a baby, it would be called a Cash Balance Plan. That might sound like a joke, but it’s actually the best way to describe it.

A Cash Balance Plan is a retirement plan that:

• Offers the massive tax-deductible contributions of a traditional pension plan

• Looks and feels like a 401(k) from the participant’s perspective

• Is fully legal, fully IRS-approved, and designed for high-income business owners

Let’s break it down.

The Basics: A "Hypothetical Account Balance"

Instead of promising a monthly income for life (like old-school pensions), a cash balance plan promises a lump sum at retirement.

Your plan account grows in two ways:

1. Pay Credit – A percentage of your compensation added each year (e.g., 5%–8%)

2. Interest Credit – A guaranteed annual return (often tied to Treasury rates)

Important note: Unlike a 401(k), your account balance isn’t tied to stock market performance. You get the promised growth no matter what, but the business is on the hook to fund the difference.

Real-Life Example: Meet James, a 53-Year-Old Business Owner

James runs a consulting firm and makes $450,000 in net profit each year. He already maxes out his 401(k) ($30,500 in 2024 with catch-up) and wants to reduce his tax bill even more.

He sets up a Cash Balance Plan. Based on his age and income, he’s able to contribute an additional $180,000 per year fully tax-deductible to the business.

Results: 

• He lowers his taxable income by over $210,000 annually.

• He builds a tax-deferred retirement asset that compounds steadily.

Lump Sum or Lifetime Income: You Choose

At retirement, your “account balance” can be:

• Rolled into an IRA, where it continues to grow tax-deferred

• Converted into an annuity that pays you monthly for life

Either way, you’ve captured years of above-average deductions, and you've built wealth using the same system high-level execs have used for decades.

Bonus: It’s Backed by a Federal Guarantee

Cash balance plans fall under the umbrella of defined benefit plans, which means the Pension Benefit Guaranty Corporation (PBGC) may insure your benefits, something 401(k)s don’t offer.

It’s one more layer of financial confidence for those who qualify.

Bottom Line?

A cash balance plan lets you:

• Deduct far more than a traditional retirement plan

• Build wealth in a predictable, controlled environment

• Reduce your business's taxable profit dramatically

And yet, most business owners never hear about it.

That ends today.

Why Cash Balance Plans Matter for Business Owners

Let’s cut to the chase.

You didn’t start your business to become a tax expert you started it to build wealth, create freedom, and take care of your family. But once the profits start rolling in, the IRS shows up with a bigger hand every year. If you’ve ever stared at your tax bill thinking, “There has to be a better way,”you’re right.

A Cash Balance Plan is that better way.

Massive Tax Savings, Right Now

Here’s the truth most CPAs won’t tell you:

The tax code rewards business owners who build retirement systems not just retirement accounts.

With a cash balance plan, you can contribute $100,000–$300,000+ per year depending on your age, income, and plan design. 

All of it is:

• Tax-deductible to the business
  
• Tax-deferred for you personally

And it adds up fast.

It Supercharges Your Wealth, Not Just Your Deductions

Most retirement plans have contribution ceilings that choke your savings potential.

But a Cash Balance Plan?

• Allows you to catch up fast if you got a late start on retirement

• Lets you stack savings on top of your 401(k)

• Helps you shift profits out of your business and into protected personal wealth

And because it’s based on a guaranteed credit rate, it grows with less volatility than the marketsmaking it ideal for business owners who want stability in their portfolio.

A Strategic Fit with the CLEAR EDGE Framework

Cash Balance Plans hit multiple pillars of the CLEAR EDGE Framework:

• Retirement Planning – Capture large deductions now and secure your future
• Accumulation of Wealth – Turn today’s profits into tomorrow’s tax-deferred growth
• Deduction Maximization – Layer on top of 401(k), HSA, and fringe benefits for deep savings
• Legal Structure – Works best within an S-Corp or C-Corp environment with good payroll planning

It’s one of the few tools that lets you go deep and wide: big savings now, long-term benefits later.

Built-In Audit Protection (If Done Right)

Worried about red flags?

Good. You should be. But here’s the deal:

• These plans are IRS-sanctioned

• They follow strict actuarial formulas

• As long as you document contributions, follow funding rules, and file Form 5500 each year, you’re on solid ground

We’ll cover audit-proofing in detail later, but know this:

Cash Balance Plans aren’t loopholes. They’re blueprints if you follow the specs, you’re protected.

Bottom Line:

If you’re making real profit, tired of paying six figures to the IRS, and looking for a wealth strategy that’s smart, legal, and scalable…

The Cash Balance Plan isn’t just an option. It’s a competitive advantage.

Who Should Consider a Cash Balance Plan?

Here’s the thing, cash balance plans aren’t for everyone.

They’re powerful, but they’re also advanced. So before you start sketching out deductions on a napkin, let’s talk about who these plans are built for.

Ideal Candidates: The Sweet Spot

A Cash Balance Plan works best for business owners who meet the following profile:

High Profits: You're earning $250,000+ in net income (after expenses) and want to lower your tax liability now.

Consistently Strong Cash Flow: You can commit to contributing $50K–$300K per year without harming your business operations.

Already Maxing Other Plans: You’ve maxed out your 401(k), SEP, or SIMPLE IRA and you want more tax-advantaged savings.

Ages 40–65 (Preferably 50+): The older you are, the higher your contribution limit under IRS rules. That makes it a killer catch-up tool.

Few or Older Employees:

Since contributions may need to be made for eligible employees, it's best if your team is:

• Small and/or

• Close in age to the owner

Pro tip: A plan can still work with employees, but it must pass IRS “non-discrimination” tests this is where plan design becomes key.

Red Flags: When It Might Not Be the Right Fit

If any of these sound like you, consider waiting or exploring other strategies first:

• Your profits are inconsistent year to year: This plan is a multi-year commitment. If your income swings wildly, you risk underfunding.

• You’re just starting out: Start with simpler options like a solo 401(k) or SEP until your income stabilizes.

• You have a large, young workforce: You can still use a cash balance plan, but employee contribution costs may outweigh the owner benefit unless carefully designed.

Questions to Ask Yourself Before Moving Forward

• Am I tired of overpaying the IRS every year?

• Do I want to invest more in my own financial future?

• Is my CPA helping me play offense or just filing paperwork?

If you’re saying “yes” to these questions...
It’s time to take this plan seriously.

Business Entity Matters Too

While a cash balance plan can work in many structures, it’s often best paired with:

• S-Corporations (for salary planning and audit safety)

• C-Corporations (for deferring corporate income)

• LLCs are taxed as Corps
  

The structure determines how compensation is set and contributions are calculated which means choosing the right entity is part of the strategy.

Bottom Line:

If you’re profitable, proactive, and ready to build real wealth while cutting taxes hard this plan can be a game-changer. But it’s not a one-size-fits-all. You need the right fit, the right design, and the right guide.

Contribution Limits & Examples

If you’re already contributing to a 401(k) or SEP IRA, you might assume you’ve hit the retirement savings limit. But a Cash Balance Plan unlocks a whole new tier one that most business owners don’t even know exists.

Let’s break down what’s possible.

How Much Can You Contribute?

The IRS doesn’t publish a flat number for cash balance plans the way it does for 401(k)s. Instead, contributions are based on:

• Your age
  

• Your compensation
  

• An actuarial formula projecting your future benefit

The older you are, the more you can contribute because there’s less time to fund your promised retirement benefit.

2025 Contribution Ranges (Estimate by Age)

These numbers vary by plan design and income, but this gives you a ballpark.

Layering with a 401(k) Combo Plan

Here’s the cool part! Cash Balance Plans are stackable with your existing retirement plans.

You can still contribute:

• Up to $23,000 (or $30,500 with catch-up) to your 401(k)
  

• Plus up to 6% of pay as an employer match

• And another $100K–$300K+ to your Cash Balance Plan
  

That’s $150K–$330K+ in annual tax-deferred savings.

Real-World Scenario: High-Impact Example

• Client: Mark, 56-Year-Old Architect, S-Corp Owner
• Profit: $500,000/year
• Current Retirement Strategy: Maxing 401(k) deferral + match = ~$67,000
• Tax Pain: Still cutting checks for over $120,000 in taxes every April

The Problem

Mark had done everything “by the book.” He was maximizing his 401(k), contributing a safe employer match, and running a clean S-Corp. But with business profits sitting at half a million dollars, he still owed well over six figures in taxes annually. His CPA had no answers, just another tax bill. What Mark didn’t realize was that he was playing defense, not offense.

The Breakthrough: Add a 2025 Cash Balance Plan

After working with a Make Taxes Fair strategist, Mark added a Cash Balance Plan to his retirement stack. Based on his age (56), income level, and actuarial limits for 2025, he was eligible to contribute an additional $230,000 into a defined benefit plan, completely tax-deductible through his S-Corp.

This elevated his total retirement contributions to nearly $300,000 for the year, stacking:

• $23,500 employee 401(k) deferral

• $7,500 age 50+ catch-up

• $69,000 profit sharing

• $230,000 cash balance funding

  Total: $300,000

The Impact

That one strategic move did more than just pad his retirement account; it cut his taxable business income to around $200,000, slashing his 2025 tax bill by over $85,000. The plan is 100% IRS-compliant, actuarially certified, and designed to scale with his goals until retirement.

And the quote we love most from Mark:

“I just gave myself a six-figure raise without the IRS getting any of it while I’m working and in these higher brackets!”

He’s right. By moving income from high-bracket years into a tax-deferred vehicle, Mark not only escapes current tax pain, he sets himself up to draw from this retirement pool at a lower tax rate in retirement, when he’s no longer running payroll or stacking profits. It’s not just about saving now, it’s about smart sequencing of income and taxes over time.

Takeaway

Mark’s story is a masterclass in legal tax leverage. If you're over 50, running a profitable business, and still writing big checks to the IRS, it's time to stop playing small-ball. With the right strategy, you can shift six figures a year from Uncle Sam to your future self, and do it all with confidence, compliance, and clarity.

How the Contributions Work

Your company makes the contribution on your behalf.
You don’t personally pay it it’s deducted from your business profits.

That means:

• Lower adjusted gross income (AGI)

• Lower payroll tax exposure

• Bigger retained wealth over time

Bottom Line:

This isn’t just about retirement.
It’s about reclaiming control over your income, redirecting dollars from the IRS into your future.

When designed right, a Cash Balance Plan isn’t an expense it’s an investment with a guaranteed return: less tax, more wealth.

Setup, Compliance & IRS Audit Triggers

A Cash Balance Plan isn’t something you set up over a weekend.

This is a sophisticated, high-leverage tax strategy with huge upside, but only if it’s done right. The IRS rewards precision and punishes shortcuts. That’s why these plans require expert setup, airtight documentation, and annual compliance with federal regulations.

But here’s the good news: when managed correctly, a Cash Balance Plan is one of the most efficient, IRS-approved tax shelters available to business owners today.

If you’re earning big and still writing big checks to the IRS, this could be your legal escape hatch. Let’s walk through what it takes.

How to Set Up a Cash Balance Plan the Right Way

1. Start with a Strategic Tax Partner, Not Just a Filer

Most CPAs focus on past data. But tax strategy is about shaping your future. You need someone who understands both tax law and retirement architecture, who can map your business cash flow to long-term financial goals.

That’s where Make Taxes Fair steps in. We design retirement strategies that align with your business profit, timeline, and even your exit plan, not generic, copy-paste templates.

2. Hire a TPA (Third-Party Administrator)

A Cash Balance Plan must be actuarially sound. Your TPA is the technical quarterback who:

• Prepares the IRS-required plan documents

• Calculates annual contributions using complex formulas

• Files Form 5500 with the IRS and Department of Labor each year

3. Coordinate with Your 401(k) Provider

Most business owners combine a Cash Balance Plan with a 401(k) to maximize contributions and meet IRS nondiscrimination requirements. But this isn’t plug-and-play; you’ll need both plans designed to work in tandem, especially if you’re covering employees. Poor coordination here is one of the most common IRS audit triggers.

4. Design a Sustainable Funding Strategy

Once the plan is set, you’re required to contribute each year, often within a specific range. This isn’t a “one-and-done” deduction.

The good news? Your contributions are flexible within IRS rules and fully deductible. With the right design, you can build toward your retirement while keeping your business cash flow healthy.

5. Maintain Annual Compliance

Each year, you’ll need to:

• Fund the plan by your business’s tax filing deadline (including extensions)

• File Form 5500

• Get an actuarial certification of your contribution amounts

This is where many DIY setups fail. But when managed with intention, this system becomes a shield, not a stressor.

IRS Compliance: What You Must Get Right

Minimum Participation & Nondiscrimination

The IRS doesn’t allow you to build a plan that only benefits the owner. You must:

• Cover a minimum number of eligible employees

• Use fair (often age-weighted) contribution formulas

• Pass annual nondiscrimination testing

Vesting Requirements

Cash Balance Plans must be 100% vested after three years of service. Period.
No creative accounting. No games.

Funding Deadlines

Annual contributions must be made by your corporate tax return deadline, including extensions. Miss that? You could face excise taxes, penalties, or worse, plan disqualification.

How to Stay Audit-Proof

The IRS provides clear rules. If you follow them, audit risk stays low. But here’s how to protect yourself:

• Document Everything: Keep detailed records of contributions, TPA filings, actuarial reports, and employee notices. When in doubt, document more than you think you need.

• Avoid “Wear Away” Gaps: If you’re converting from an old defined benefit plan, don’t create a period where employees stop accruing benefits. This “wear away” zone is a known audit trigger.

• Stay Consistent: These are long-term plans. If you skip funding years without a valid business reason (and solid documentation), you risk scrutiny. Make it predictable and justifiable.

Bottom Line:

A Cash Balance Plan is not something you “try”, it’s a commitment.

When done right, it’s one of the most effective, legally defensible, and future-focused tools in your tax strategy toolkit.
When done wrong, it becomes a high-risk liability.

That’s why at Make Taxes Fair, we don’t just set up plans, we build strategic systems designed to protect your business, grow your wealth, and eliminate fear around audits and retirement gaps.

Want a six-figure deduction that also future-proofs your financial freedom? This is how you do it, by design, not by default.

Conversion Considerations (From Traditional Pension)

Let’s say your business already offers a traditional pension plan. You might be thinking:

“Can I switch over to a Cash Balance Plan to simplify things and take better control of funding?”

Yes, but it has to be done carefully. The IRS has laid out clear ground rules to protect employees and ensure fairness during the conversion process.

Let’s walk through what you need to know.

What Happens During a Conversion?

Converting a traditional pension plan into a Cash Balance Plan isn’t a termination or reset, it’s a structural upgrade. All assets in the original plan remain fully intact, and no value is lost in the process. What’s important to understand is that this transition doesn’t cancel out prior commitments; instead, it adds a modern, more flexible layer for future benefit accruals.

When the conversion occurs, all previously earned benefits under the traditional pension plan are frozen and protected. These are locked in and continue to be backed by the plan’s assets. Going forward, employees begin earning benefits under a new structure, one that ties their retirement value to a hypothetical account balance.

This account grows annually through two key mechanisms:

• Pay Credits – Typically a fixed percentage of salary (e.g., 5% of annual compensation)

• Interest Credits – Either a fixed rate (like 4%) or a variable rate linked to an index such as the 30-Year Treasury

The result is a shift in format, not a cancellation. Think of it as evolving from a defined benefit model rooted in formulas and projections, to a more understandable, account-based system that’s easier for employees to track and for employers to fund strategically.

Employee Rights and Legal Protections

Federal law strictly limits what employers can do during a plan conversion:

• No “Wear Away” Periods: Employees must continue earning benefits. You can’t just freeze old benefits and wait years before the new ones kick in.
• Pre-Amendment Benefits Are Locked In:  Any benefits earned under the old plan formula are protected and cannot be reduced even if the plan changes.

  • Example: If an employee has 10 years of service with a guaranteed $1,500/month pension, that benefit remains locked on top of the new cash balance benefit going forward.

• Accelerated Vesting: All benefits under the new plan must vest fully after 3 years of service. That’s faster than many traditional plans, and it’s non-negotiable.

Notification Requirements

Advance Notice

If the conversion reduces the rate at which future benefits are earned, employers must give at least 45 days’ notice before the change takes effect.

Updated Plan Summaries

After the amendment, employees must receive:

• A Summary of Material Modifications
  
• Or an updated Summary Plan Description (SPD)
  

These documents explain the change in plain terms.

Disclosure Rules Under ADEA

If employees are given a choice between plans, the employer must:

• Provide enough information for a “knowing and voluntary” decision

• Allow at least 21 days to decide, with a 7-day revocation window
  

Employee Communication Strategy (The Human Side)

Whether you have 3 employees or 300, how you present the plan change matters.

At Make Taxes Fair, we recommend:

• Holding a live or recorded employee Q&A

• Providing printed and digital explanations of how benefits will grow

• Reassuring employees that they are not losing anything and are gaining more predictability

Transparency builds trust and avoids legal trouble.

What Happens to the Plan’s Assets?

The plan’s assets stay right where they are. The employer can’t pull money out unless:

• The plan is fully terminated
  

• And all promised benefits have already been paid

So no this isn’t a sneaky way to access locked-up retirement money. It’s simply a smarter way to manage it going forward.

Bottom Line:

A well-executed conversion can modernize your retirement strategy, unlock better tax treatment, and provide clarity for both you and your team.

But done sloppily? It can create confusion, erode trust, and trigger compliance nightmares.

If you're considering converting an old plan, let’s do it the smart, safe, and strategic way so you maximize the benefit, not the risk.

Benefits to Employees

Here’s something most business owners overlook:

A well-structured Cash Balance Plan doesn’t just help you save money it helps your employees build a stronger, more secure future, too. And in today’s competitive hiring market, a great retirement benefit is a game-changer.

Predictable, Employer-Funded Retirement Growth

Cash balance plans promise employees an annual contribution (the “pay credit”) and a guaranteed growth rate (the “interest credit”).

Unlike 401(k)s:

• Employees don’t need to make any contributions themselves

• They don’t bear any investment risk

• They see a clear, reliable growth path for their retirement funds

It’s like giving your team a private pension they can count on without them having to worry about the stock market or manage their own investments.

Lump Sum or Lifetime Income at Retirement

When employees retire or leave the company, they can typically:

• Take a lump sum payout (often rolled into an IRA tax-deferred), or

• Choose a guaranteed lifetime annuity (monthly income for life)

This flexibility makes the plan attractive to a wide range of workers, from young professionals to those nearing retirement.

Fully Vested After 3 Years

Cash balance benefits vest 100% after just three years of service.

That’s a short path to a meaningful retirement benefit especially compared to traditional pension or profit-sharing vesting schedules that may stretch over 5–6 years.

• This makes your offer more valuable and more competitive when hiring seasoned professionals or retaining mid-career talent.

Portability (Yes, They Can Take It With Them)

One of the best-kept secrets about cash balance plans?

They’re portable. If an employee leaves your company:

• Their vested account balance can be rolled into a traditional IRA
  

• The funds remain tax-deferred

• They gain flexibility and ownership over their retirement savings

No “use it or lose it” risk this is real, transferable wealth.

Confidence and Clarity

Let’s face it: most employees are overwhelmed by retirement planning.

A Cash Balance Plan gives them:

• A defined benefit they don’t have to manage

• A clear growth formula they can understand

• A stable source of retirement funding guaranteed by the plan

That creates peace of mind. And that builds loyalty.

Bottom Line:

If you're serious about attracting and keeping top talent especially skilled, experienced professionals a Cash Balance Plan gives you a serious edge.

• It’s competitive

• It’s generous

• And it’s completely employer-funded and IRS-approved

You’re not just saving money on taxes you’re investing in your team’s future.

Common Pitfalls to Avoid

Cash Balance Plans are powerful. But powerful tools require precision. Here are the most common mistakes we see and how to stay miles ahead of them.

Skipping the Strategy Step

Too many business owners jump into a plan based on tax season panic: “My CPA said we needed deductions. Let’s set this up.”

But without:

• Forecasting future cash flow

• Matching contribution levels to your goals

• Coordinating with your legal structure and 401(k)...

You could end up locking in a plan you can’t comfortably fund.

Fix: Always start with a strategic blueprint. (This is what our Tax Reduction Blueprint Session is built for.)

Ignoring Employee Participation Costs

The IRS requires you to cover eligible employees. If your team is:

• Large

• Young (especially under 40)

• Rapidly growing

You could end up funding more than you planned especially if the plan isn’t carefully structured.

Fix: Use smart design features like “cross-tested” combo plans to balance owner and employee contributions.

Underfunding or Skipping Contributions

This isn’t a SEP IRA. You can’t “just skip a year.”

Cash balance plans have minimum required contributions. If you don’t make them:

• You could face IRS penalties

• Your plan could be disqualified

• You may owe excise taxes on missed funding

Fix: Build your contribution budget in advance and communicate with your TPA each year.

Failing to File Form 5500 or Get Actuarial Sign-Off

Each year, you must:

• File Form 5500
  

• Have an enrolled actuary certify the plan’s funding

Missing either of these creates compliance risks and audit flags.

Fix: Work with a team that handles filings for you and sends proactive reminders not one that leaves it up to you to remember.

Choosing the Wrong Entity or Compensation Strategy

If you’re an S-Corp owner paying yourself too low a salary, your allowable contribution will shrink fast.
And if you’re a sole prop or LLC with no payroll at all, your options will be limited.

Fix: Set your entity and compensation strategy intentionally. This is where tax planning meets legal structure and it matters.

Thinking You Can “Set It and Forget It”

Cash Balance Plans are living strategies.
They must be reviewed each year based on:

• Profit levels

• Employee changes

• Retirement goals

• Tax law updates

Fix: Treat your plan like your business review it annually and adapt as needed.

Bottom Line:

A Cash Balance Plan can help you cut six figures in taxes and build wealth at lightning speed.
But only if you avoid the traps that turn strategy into stress. Work with the right team. Build the right system. Keep your eyes open.

You’ll be miles ahead of the average business owner and lightyears ahead of the IRS.

Frequently Asked Questions (FAQ)

Q1: Can I have both a 401(k) and a Cash Balance Plan?

Absolutely. In fact, most of our clients do. This “combo” setup allows you to contribute to both plans in the same year, stacking tax-deferred savings.

Example: You max out your 401(k) at $30,500 (with catch-up) and still contribute another $200K+ to a Cash Balance Plan.

Q2: What if I have a year where cash flow is tight do I have to contribute?

Generally, yes but with the right planning, you’ll build in flexibility. Cash balance plans are considered “defined benefit” plans, so minimum annual funding is required based on the benefit formula.

Solution: Work with your TPA and tax strategist to create a range-based design (called a “floor and ceiling” funding structure) that gives you breathing room.

Q3: How are contributions calculated?

Contributions are based on:

• Your age
  

• Your W-2 compensation
  

• Your retirement benefit target (usually defined by an actuarial formula)

The older you are, the more you can contribute because you have fewer years left to fund the same benefit.

Q4: Can employees opt out of the plan?

No. If they’re eligible based on plan rules (usually age 21+, 1 year of service, 1,000+ hours/year), they’re automatically included.

But remember: your team benefits too with employer-funded retirement growth they don’t have to manage.

Q5: Is the money locked up forever?

Nope. Here’s how it works:

• If you retire or terminate the plan, you can roll over your balance to an IRA
  

• There are also annuity options for lifetime income (if desired)

• Early withdrawals before age 59½ are subject to taxes and penalties just like with a 401(k)

Q6: What happens if I sell my business?

Good news: You have options.

• You can freeze the plan before the sale

• Or terminate it, distribute the assets (to IRAs), and walk away

• In some cases, the buyer may even assume the plan as part of the deal (depending on the terms)

A strategic exit plan will map out the best move based on your goals and the deal structure.

Q7: Isn’t this just for big corporations?

Not at all.

In fact, Cash Balance Plans were modernized specifically to help small- and mid-sized businesses benefit from the same tax and retirement strategies Fortune 500 execs have used for years.

If your business is profitable and consistent, this could be one of the smartest moves you ever make.

Q8: What if I already have a SEP IRA or SIMPLE IRA?

You’ll likely need to terminate those plans before setting up a 401(k)/Cash Balance combo.

We’ll guide you through how and when to do that without losing any value and help you avoid overlap issues that trigger IRS compliance concerns.

Q9: How do I know if this is really worth it for me?

That’s where our Tax Reduction Blueprint Session comes in.

We run your numbers through our CLEAR EDGE framework and show you:

• Exactly how much you could contribute

• What it would save you in taxes

• What compliance would look like

It’s not a guess,it’s a plan.

Final Thoughts

Here’s the truth: The tax code wasn’t written for the average taxpayer.

It was written to reward strategy especially for business owners who build retirement systems, not just retirement accounts.

The Cash Balance Plan isn’t just another deduction.
It’s a multi-dimensional wealth strategy that:

• Cuts your tax bill today

• Builds serious, compounding retirement assets

• Empowers you to exit on your terms

• Helps your team retire with confidence

• And gives you leverage most business owners never discover

Most people spend decades working harder to get ahead.

But the real wins come when you start working smarter and that means putting a structure in place that lets your business income serve you for life.

At Make Taxes Fair, we don’t just believe in paying less in taxes.

We believe in using those dollars to build freedom, security, and generational wealth.

If your gut tells you that you’re overpaying the IRS and under-building your future, you’re probably right.

Let’s change that starting now.

Now it’s time to take action. If you have questions, reach out and start a conversation.