The Cash Blance Plan Most High-Income Business Owners Have Never Heard Of

Most business owners I talk to think they have two options when it comes to saving for retirement. A 401(k). Or a SEP-IRA. So they max one out, feel good about it, and move on.

But there's a third option. One the IRS has allowed for a long time. One that can let high-income business owners shelter far more than a 401(k) ever could, every single year, fully tax-deductible. It's called a Cash Balance Plan, and most owners have never heard of it.

If you're a business owner still building the foundation of your financial plan, start here.

What Is a Cash Balance Plan

The name says it all.

You have a cash balance. You can see it. You watch it grow every year. It looks and feels like a 401(k), there's an account with your name on it and a real number inside it.

But the IRS classifies it as a defined benefit plan, and that classification is what gives it power. Each year, your account gets credited with two things: a pay credit based on your compensation, and an interest credit at a guaranteed rate.

Here's what that actually means for you. You, the business owner, make the contribution. Every year, you fund the plan out of your business. In return, your business deducts every dollar contributed. And your account balance grows at a guaranteed rate regardless of what the market does.

How Does This Compare to a 401(k)?

The IRS caps total contributions to a 401(k), including profit sharing, at $72,000 in 2026.

With a 401(k), the IRS caps what you can contribute as an employee at $24,500 in 2026. Stack employer profit sharing on top and the total ceiling is $72,000, full stop.

A Cash Balance Plan has no fixed ceiling like that. Instead, an actuary, a licensed math professional, calculates exactly what you need to contribute each year to hit your target balance at retirement. That number is driven by your age, your income, and your target. The older you are, the larger the required annual contribution, because you have fewer years to reach the goal.

That larger contribution means a larger deduction for your business. For high-income owners who have already hit the 401(k) ceiling, that gap is where real tax savings live.

What About Self-Employed Owners With No Employees?

This is the first question most people ask, and the answer is yes.

If you are self-employed with no employees, you can establish a Cash Balance Plan. IRS Publication 560 explicitly covers these plans for self-employed individuals. Your contribution is calculated based on your net earnings from self-employment, not your gross revenue. That number is what the actuary works from.

Being solo actually works in your favor here. When a plan covers multiple employees, the IRS requires nondiscrimination testing, essentially proving the plan doesn't unfairly favor you over your staff. With no employees, there's nobody to compare against. No testing. Less complexity. A cleaner plan.

Who This Is For

This plan isn't for everyone, and being honest about that matters.

It works best for business owners who are earning consistent, high income year after year and are age 45 or older. It tends to make the most sense for owners who have already maxed out their 401(k) and are still writing a large check to the IRS every April.

The keyword there is stable. A Defined Benefit Plan requires consistent funding. If your income swings significantly from year to year, the mandatory contribution structure can become a problem rather than a benefit. This plan rewards discipline and penalizes inconsistency.

If you have employees, plan design matters too. The rules around who must be included in the plan require a closer look before moving forward.

What You're Signing Up For

This is the part most people gloss over. Don't.

You are required to hire a licensed actuary. The IRS mandates actuarial calculations to determine your contribution each year. This is not something you estimate yourself. The actuary tells you what you owe the plan, and you fund it.

That funding is not optional. Once this plan is established, you must contribute consistently. If the plan's investments earn less than the guaranteed interest credit, you make up the difference out of your business. There is no skipping a year because revenue was down. There is no underfunding and catching up later.

At Retirement

When you're ready to stop working, you can roll your Defined Benefit Plan balance directly into an IRA.

That means full control of your money. You choose how it's invested. You decide when and how much to take out. It moves out of the plan structure and into an account you own, just like any other IRA you've ever had.

---

If you are an entrepreneur who is looking for a better understanding of financial planning, schedule a call, and talk with a Moment founder.

For more on financial planning for business owners, check out this video on how business owners can save money on taxes.

Get in Touch With An Advisor

SCHEDULE A CALL WITH MOMENT

Frequently Asked Questions

Here are some answers to questions I received frequently about this topic.

1. Can I set up a Cash Balance Plan if I already have a 401(k)? Yes. A Cash Balance Plan and a 401(k) can run at the same time. Many high-income owners run both simultaneously to maximize their annual deduction. Your actuary and tax advisor can help structure both plans together.
   

2. How much can I actually contribute each year? There is no fixed number. Your annual contribution is calculated by a licensed actuary based on your age, your net income, and your target balance at retirement. The IRS caps the maximum annual benefit at $290,000 for 2026, and the older you are, the more you can contribute each year to reach that target.
   

3. Who is the actuary and what do they actually do? An actuary is a licensed math professional required by the IRS to calculate your annual contribution. They look at your age, income, target benefit, and the plan's investment performance, and tell you exactly what you need to put in each year. You cannot estimate this number yourself.
   

4. How do you work with other members of my team? We believe in the power of the team. For most of our clients, their team consists of Moment Private Wealth, an accountant, an attorney, a banker, and an insurance specialist. We help our clients build out their team of individuals or work with existing partners that the clients have. Our goal is to ensure every family has a team of experts to protect their interests.
   

5. Why should I consider hiring Moment Private Wealth? Great question! But first, let us explain why you shouldn’t hire us. If you’re looking for an advisor who will pitch shiny object investments or be a “yes man” you are in the wrong place. Why? Because we believe in being truth tellers and only giving advice that we take ourselves. The investments, strategies, and planning we do are all things our advisors do with their own money. If you are an athlete or entrepreneur interested in things like lowering your tax bill, investing smarter, and finding a trusted partner, we might be a good fit.

---

*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.