Pension Plans

A “Cash Balance Plan” is an IRS-qualified type of pension plan aimed at delivering benefits in addition to a 401(k) or traditional retirement plan. The plan is designed to deliver a defined retirement benefit supported by a pooled investment account.

How much can be contributed?

The contribution is specified by the owners in the plan document and is based on a formula. It can be either a percentage of pay or a flat dollar amount. For many individuals, these contributions are 100% tax deductible. See the table below for the limits for 2024.

Can a cash balance plan work with my existing 401(k)?

Yes! Employers may often offer a combination of qualified plans to produce a larger contribution. 

What happens to the plan if you retire or leave your job?

The funds may often be distributed as a lump sum distribution or annuity. Lump sum distributions may be rolled to an IRA or existing qualified retirement plan.

Can cash balance contributions change?

Yes, but within a set of bounds. Generally, reductions must be made prior to any employee working 1,000 hours in a plan year. Plans may also be frozen or terminated.

Is equal participation required?

No. While the plan must pass discrimination testing, equal participation is not required.

How do the tax deductions work?

For contributions made for non-partner employees the deductions are taken on the partnership or corporate tax return. Contributions made for partners / owners are then generally taken on their personal returns.

How do costs compare to a normal 401(k)?

Cash balance plans can be more expensive to set up and maintain than 401(k) profit sharing plans. Interwise will prepare an analysis of your situation to help you understand whether the tax deductions and savings make the cash balance plan make sense for your situation.

The information presented above is for educational purposes only and is not intended to be tax, investment, or retirement plan advice. Please reach out to us or consult your trusted advisors in these areas of expertise for advice pertaining to your unique individual situation.

What does a free consult with us look like?

  • Gather Data

    Get to know your current plan design and objectives

  • Analyze

    Craft a benefit plan design that seeks to optimally achieve your goals

  • Fit Meeting

    Share our recommendations with you in a free consultation to determine whether the plan proposed can significantly benefit you and your organization

Schedule a meeting

Being proactive on pension plan design can dramatically change the number of tax dollars you pay this year and your outlook for retirement.