Cash balance plans can create a valuable opportunity for CPAs and investment advisors to work together on behalf of successful business-owner clients.
By Jeff Herman
For certain profitable businesses and high-earning owners, a cash balance plan may provide another way to accelerate retirement savings beyond a traditional 401(k). Evaluating whether it makes sense requires looking at both sides of the client’s financial picture: the business, cash flow, and tax considerations, and the owner’s retirement goals and broader investment strategy.
Traditionally, those have been two lanes on separate highways. But the potential benefit makes this an exercise worth doing. The CPA brings deep visibility into the economics of the business, while the advisor can help assess how the plan fits into the client’s long-term retirement strategy.
For the right client, simply identifying the opportunity and bringing the appropriate professionals together can lead to a more coordinated and potentially more effective retirement plan.
In a Fidelity study, 83% of small-business owners said they know they should be saving more for retirement, but 59% weren’t sure how to maximize those savings. Among self-employed and microbusiness owners, 75% weren’t even sure whether they were saving enough.
First: What Exactly Is a Cash Balance Plan?
A cash balance plan is a defined benefit retirement plan.
That classification surprises some people because the plan can look, at least superficially, like an individual retirement account.
Participants typically see a stated hypothetical account balance. The Department of Labor explains that a typical plan credits the participant each year with a pay credit and an interest credit.
But unlike a 401(k), the participant’s promised benefit does not directly rise and fall with the investment performance of an individual account. The employer bears the investment risk associated with funding the promised benefit.
That distinction is fundamental.
Why Pair One With a 401(k)?
A 401(k) is a defined contribution plan.
There is a ceiling on the amount that can be added to a participant’s account each year under the defined-contribution rules.
For 2026, annual additions to a defined-contribution plan generally cannot exceed the lesser of 100% of compensation or $72,000 before applicable catch-up contributions.
A cash balance plan operates under a different framework because it is a defined benefit plan.
Rather than starting with a defined-contribution ceiling, the plan is designed around a promised retirement benefit. The contributions required to fund that benefit are determined actuarially.
For 2026, the maximum annual benefit permitted under the defined-benefit rules is $290,000, although the amount any particular plan can fund for an individual depends on numerous factors and actuarial calculations.
This is why a cash balance plan can become particularly interesting for certain owners who are already maximizing their defined-contribution opportunities and want to accelerate retirement accumulation.
Consider the Profile, Not Just the Tax Deduction
A common temptation is to describe cash balance plans simply as a way for owners to generate a larger deduction.
That’s fair, but it overlooks a strategic opportunity: to thoughtfully consider how this could support the client’s retirement plan.
Potential candidates may include owners who:
- Generate substantial and relatively consistent income.
- Have significant annual cash flow.
- Are already maximizing existing retirement savings.
- Are approaching retirement and want to accelerate accumulation.
- Expect the business to support ongoing contributions.
- Understand that additional administration and actuarial work will be required.
Age can also matter because defined benefit calculations reflect the benefit being funded for retirement. In some circumstances, an older owner with fewer years until retirement may be able to support a larger annual contribution than a younger individual, although every plan must be modeled individually.
How Employees Fit In
This is an area where the analysis can become significantly more complex.
A business owner cannot simply establish a rich retirement benefit for themselves while ignoring eligible employees.
Plan design must account for participation requirements, nondiscrimination rules, employee demographics, and the cost of benefits across the organization.
Sometimes those economics work. Sometimes they don’t.
That is why an actuarial illustration and plan-design analysis should precede assumptions about how much an owner can contribute or deduct.
There Is Also a Funding Commitment
A defined contribution plan and a defined benefit plan place different responsibilities on the employer.
The Department of Labor explains that defined benefit plans promise a specified benefit, while defined contribution plans provide an account whose ultimate value depends on contributions and investment performance.
Defined benefit plans are also subject to minimum funding requirements, which is one reason businesses should not establish them solely because of the attractiveness of a single year’s deduction.
The IRS notes that determining required funding for a defined benefit plan is complex and generally requires professional assistance.
What Should a CPA Listen For?
CPAs and investment advisors are generally in the same business: help their clients achieve their financial goals.
The opportunity to discuss a cash balance plan with a business owner will likely present itself under those conditions. These are the comments that should get your attention:
- “I wish I could put more away for retirement.”
- “My income is much higher than it used to be.”
- “I’m 55 and feel like I’m behind.”
- “We’re having another very profitable year.”
- “I’m already maxing out my 401(k). What else can I do?”
Those statements don’t mean a cash balance plan is the answer. They mean it may be time to ask the question.
Awareness Is the Opportunity
The strongest retirement-plan strategies often emerge when professionals collaborate.
The CPA understands the business and tax picture.
The advisor understands the client’s retirement objectives and broader financial plan.
A third-party administrator and actuary can model the plan, establish funding requirements, and determine whether the economics work.
Legal counsel may also be involved where appropriate.
The CPA does not need to master every detail of a cash balance plan.
Sometimes the most valuable contribution is simply recognizing: This client may have outgrown the retirement plan they have today.
If you have a profitable business-owner client who is already maximizing retirement contributions and asking what else they can do, let’s talk. Together, we can determine whether a cash balance plan is worth modeling and whether it could create a more coordinated approach to retirement savings, tax planning, and long-term wealth accumulation.