As tax season approaches, high-income earners, business owners, and professionals seek ways to reduce their taxable income while securing their financial future. A Cash Balance Defined Benefit Plan is one of the most powerful tools for achieving these goals.
What Is a Cash Balance Defined Benefit Plan?
A Cash Balance Plan is a defined benefit retirement plan that combines the high contribution limits of traditional pension plans with the flexibility of a 401(k). Each participant has an individual account with a “cash balance,” growing through employer contributions and a guaranteed interest credit. These plans are particularly valuable for business owners, self-employed professionals, and high-net-worth individuals looking to maximize tax-deferred savings.
Why Consider a Cash Balance Plan for Tax Planning?
Massive Tax Deductions – Contributions to a Cash Balance Plan are tax-deductible for businesses, significantly reducing taxable income.
High Contribution Limits—Unlike a 401(k) with an annual cap of $23,000 (or $30,500 for those 50+ in 2024), Cash Balance Plans allow contributions of up to six figures annually, depending on age and income.
Accelerated Retirement Savings – Ideal for those who started saving late and need to catch up before retirement.
Ideal for Business Owners - Business owners can contribute for themselves and their employees, reducing company tax liability while rewarding key team members.
Tax-Deferred Growth – Funds grow tax-deferred until withdrawal, optimizing long-term wealth accumulation.
Who Benefits the Most?
A Cash Balance Plan is an excellent fit for:
High-income professionals (doctors, lawyers, consultants, CPAs)
Business owners with consistent profitability
Entrepreneurs looking for additional retirement savings beyond a 401(k)
Anyone seeking significant tax savings and retirement security
2024 Contribution Limits: How Much Can You Save?
Depending on your age, you can contribute significantly more than a 401(k) alone. Here’s a general estimate:
Age 40 → $100,000+
Age 50 → $200,000+
Age 60+ → $300,000+
Exact limits depend on business structure, compensation, and actuarial calculations.
Get Started Before Tax Deadlines
A Cash Balance Plan must be established for business owners before the tax filing deadline (including extensions) to claim deductions for the 2024 tax year. The sooner you implement the plan, the greater the tax benefits.
Secure Your Future with DPH Financial Services
Navigating tax-saving retirement strategies can be complex. At DPH Financial Services, we help high-net-worth individuals and business owners structure Cash Balance Plans tailored to their needs. Contact us today to discuss how this strategy can work for you.
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