CASH BALANCE PLANS
Designing a Cash Balance plan that fits your business structure is a smart way to reduce taxes and build retirement assets but this step is only the beginning of a longer term investment management plan required within the plan itself.
Investment management of Cash Balance plans is different from traditional retirement plan assets in that they should be focused on reducing annual volatility in order to limit the risk to owners. The WorthPointe Cash Balance Group has decades of experience in designing and managing customized portfolios.
TYPICAL CLIENTS
The following are just a small example of the type of client who could benefit from Cash Balance Plans.
PROFITABLE BUSINESS WITH 4 EMPLOYEES
Objective
Maximize owner contribution and tax savings while controlling cost of benefits for employees
Profile
Dentist, age 53 pays herself $330,000 from her successful Periodontal and Implant Surgery practice. She is willing to make contributions for her four employees but wants to receive the lion’s share for herself.
Solution
OwnersPlus Cash Balance Plan + Safe Harbor 401(k) Profit Sharing Plan
LAW PARTNERS WANT FLEXIBILITY
Objective
Allow different contributions for partners with different compensation and cash flow needs
Profile
Business partners at different stages of their lives want a plan that can be tailored to meet their individual preferences.
Solution
OwnersPlus Cash Balance Plan and because there are no other employees, each owner also could set up and contribute to an optional OnePerson(k) plan
OWNER-ONLY, HIGH INCOME THAT FLUCTUATES
Objective
Save for retirement without annual obligation
Profile
Freelance photographer, age 40 with variable income, wants to contribute intermittently – in those years that his income is high.
Solution
OnePerson(k) to which he can contribute as much as $73,500 in good years, as little as zero when he doesn’t have the cash flow.
Eligibility Checklist
Here’s a quick test to find out if our Cash Balance Plans are right for you:
- Client is 35+ years of age
- Client typically earns at least $100,000 annually in one of these ways:
- Is a sole practitioner or owns a business with family
- Is self-employed as primary means of earning a living
- Has a second occupation in which the client works for himself or herself
- Is considered an Independent Contractor rather than an employee
- Client wants to contribute more than $72,000 annually to their retirement or a higher percent of income than allowed in a 401(k) or SEP
- Client expects to be able to make that contribution for at least three years
2026 Plan Assumptions
Inputs used to calculate maximum 401(k) and cash balance contributions for 2026.
| Assumption | 2026 Limit |
|---|---|
| 401(k) elective deferral | $24,500 |
| Age 50+ catch-up | $8,000 |
| Profit sharing (employer) | $47,500 |
| Assumed marginal tax rate | 45.0% |
| 415(b) max annual benefit (DB) | $290,000 |
| 401(a)(17) compensation limit | $360,000 |
Reflects IRS 2026 cost-of-living adjustments. 401(k) elective deferral and age 50+ catch-up apply to employee contributions; profit sharing is the maximum employer addition under §415(c) ($24,500 + $47,500 = $72,000 total annual additions; $80,000 with catch-up). The §415(b) limit caps the maximum annual benefit payable from a defined benefit / cash balance plan, and the §401(a)(17) limit caps the compensation that may be considered for plan purposes.
Tax savings assume a 45% combined federal and state marginal rate; taxes are deferred, not eliminated. Individual savings will vary based on actual marginal rate and state of residence.
Source: IRS Notice 2025 announcing 2026 retirement plan limits; FuturePlan by Ascensus 2026 maximum contribution limits.
2026 Integrated 401(k) and Cash Balance Plan Contribution Limits
Maximum annual contributions and estimated tax savings by participant age.
| Age | 401(k) with Profit Sharing* | Cash Balance | Total | Tax Savings** |
|---|---|---|---|---|
| 70 | $80,000 | $397,000 | $477,000 | $214,650 |
| 65 | $80,000 | $355,000 | $435,000 | $195,750 |
| 60 | $80,000 | $355,000 | $435,000 | $195,750 |
| 55 | $80,000 | $290,000 | $370,000 | $166,500 |
| 50 | $80,000 | $226,000 | $306,000 | $137,700 |
| 45 | $72,000 | $176,000 | $248,000 | $111,600 |
| 40 | $72,000 | $137,000 | $209,000 | $94,050 |
| 35 | $72,000 | $107,000 | $179,000 | $80,550 |
**Tax Savings assume a 45% combined federal and state marginal rate; taxes are deferred. Maximum 401(k) with Profit Sharing amounts may be reduced if compensation is lower than the IRS maximum compensation limit of $360,000 and other deduction limits may apply.Maximum cash balance amounts assume a three-year average compensation of at least $290,000 (2026 §415(b) limit) and prior service. Lower three-year average compensation or service history may reduce the amounts shown. Source: FuturePlan by Ascensus 2026 limits.
CREDITOR PROTECTION
Cash Balance plans are IRS-qualified retirement plans, and all qualified plan assets are protected from creditors in the event of bankruptcy. The anti-alienation provision of ERISA states that “each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” This means that the assets in a qualified plan are not available to creditors.
Since professionals and business owners often consider asset protection a premium it is very advantageous to accrue retirement savings in an asset-protected vehicle, like a qualified plan. These plans provide a means for business owners and partners to move assets from their businesses to a pension plan. Once in the qualified plan, these assets are then protected from creditors as a “nest egg” for retirement or to pass on to heirs.
Designing and managing the right investment portfolio per the unique requirements of a cash balance plan require a specialized expertise.
Typical non Cash Balance Portfolio Investment Objective: Maximize returns and minimize risk
Cash Balance Portfolio Investment Objective: Minimize volatility around a range of returns defined by the Guaranteed Interest Crediting Rate (ICR) from the plan documents.
VIDEO RESOURCES
An Introduction to Cash Balance Plans
Flexibility of Cash Balance Plans
401k vs Cash Balance Plans: How are they Different
Who Needs a Cash Balance Plan
Cash Balance Plans Business Owner Q&A Investments & Accounts
Cash Balance Plan & Profit Share Integration Benefits
WorthPointe is a financial planning firm based in San Diego, Austin & Dallas-Fort Worth with professionals who are credentialed, experienced and owners. We provide financial planning, investment consulting, tax planning, asset protection, estate planning, charitable giving support & more.
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