Is Your Business Thriving? Explore Beyond the 401(k) to Save on Taxes and Build Your Dream Retirement.

By Becky Meats, CPA/PFS™

Do you have a consistently, highly profitable, business but not many options for tax-deductible expenses? Would you like to increase your retirement nest egg and get a tax deduction at the same time? A cash balance plan may be a great fit for your retirement dreams, tax planning strategy, and business needs.

1. Consistent High Profitability

Cash balance plans require significant employer contributions. A cash balance plan makes the most sense if your business has high and stable profits since you will be funding the plan for several years. This type of retirement plan is funded entirely with employer contributions.

2. Business Owners Seeking Larger Retirement Contributions

If you’re a business owner nearing retirement age or simply looking to accelerate your retirement savings, a cash balance plan may be ideal. These plans allow for much larger contributions compared to traditional retirement plans, enabling you to save more in a shorter amount of time. A cash balance plan will not limit contributions to individual retirement accounts or other employer accounts.

3. Desire for Tax Deductions

Cash balance plans offer significant tax advantages because employer contributions are tax-deductible. If your business has a high tax burden, cash balance plans can help reduce taxable income while building up retirement savings for owners and employees.

4. Business With High-Income Employees

If your business employs key personnel who are high earners, a cash balance plan can provide an attractive benefit. It allows for higher contribution limits than 401(k)s, enabling high-income employees to save more for retirement in a tax-advantaged way.

5. Owner(s) Closer to Retirement

Cash balance plans allow older owners to make larger contributions than younger ones, based on age. If you’re closer to retirement and need to boost savings, this plan enables you to “catch up” quickly, making it a powerful tool for retirement planning. 

6. Business Size and Workforce

Cash balance plans can work well for small to mid-sized businesses, but they are particularly effective if your workforce includes a mix of older, higher-compensated employees, and younger staff. The older participants can receive larger contributions while still providing reasonable benefits to younger employees.

7. Commitment to Annual Funding

Cash balance plans require annual contributions that are set by an actuary, and those contributions must meet minimum funding standards. If your business is willing to commit to funding this plan every year, it may be a good fit. However, this obligation is more rigid compared to a 401(k) plan, which allows more flexibility with profit-sharing.

8. Pairing With an Existing 401(k) Plan

Many businesses pair a cash balance plan with an existing 401(k) and a profit-sharing plan to maximize retirement benefits. If your business already has a 401(k), adding a cash balance plan can allow for much higher combined contributions.

9. Compliance and Administrative Costs

Cash balance plans require actuarial calculations and more complex administration than 401(k) or profit-sharing plans. There are additional administrative costs and complexity, but Clear Insight Wealth Management is experienced in working with employers to facilitate a plan for your business.

Questions to Ask Yourself

• Is your business profitable enough to support annual contributions?

• Do you need higher tax deductions than what a 401(k) provides?

• Do you want to maximize retirement savings?

• Are you committed to maintaining this plan over several years?

If your business is highly profitable and you want to increase your retirement contributions and significantly decrease your taxable income, a cash balance plan can be a powerful tool. However, it’s important to have the financial stability and make a commitment to fund the ongoing contributions and administrative costs.

At Clear Insight Wealth Management, our experienced team helps you understand and implement these strategies. If you’re ready to reduce your tax liability and increase your savings, we’d love to hear from you. To schedule a “Get to Know You” meeting, email becky@myciwm.com or schedule online.

About Becky

Becky Meats is a Certified Public Accountant and partner at Clear Insight Wealth Management, a wealth management firm for military families, government employees, and small business owners looking for a clear path to living their best lives. A firm believer that money is a tool that allows us to make our dreams happen, Becky thrives off simplifying clients’ finances and helping them find financial success. Becky has the rare talent of making the seemingly complex and chaotic world of finances and taxes simple and understandable. This understanding allows clients to make better use of their financial tools, often leading to success in many other parts of their lives.

Becky obtained her bachelor’s degree from Washington State University and has over 16 years of experience in accounting. She is a Certified Public Accountant (CPA) and Personal Financial Specialist (PFS). Her expertise is critical in integrating all the aspects of financial planning into a comprehensive whole.

Becky and her family live on a small farm with their registered Jersey cows and flock of unruly chickens. When she’s not poring over tax code, she can be found chasing cows out of her garden or lacing up her running shoes and going for a training run. An avid runner, she’s working toward the goal of running a race in every state (6 down, 44 to go). Despite a busy schedule, Becky dedicates her time to the local community. She is active in her local grange and corrals the Junior and Youth grangers at the local county fair (a significantly more difficult challenge than the livestock). To learn more about Becky, connect with her on LinkedIn.