To return to the forum homepage, please click the banner at the top of your browser.

Main Menu

Cash Balance Plan

Started by Jbinjville, September 06, 2019, 03:29:28 PM

Previous topic - Next topic


I want to share something that I just learned about this week. If you have high income and have maxed out the $60K or so in the 401K and are still looking to defer taxable income and you either own your company or are a significant stock holder or have influence with those that are then look into a 'Cash Balance Plan'.  We haven't pulled the trigger yet as it's so new to us but we're getting quotes and should have it set up easily by year end. as an S-corp, in addition to  making distribution checks on taxable K-1 amounts, it appears that we can also contribute a stock percentage ownership of pre-tax money into this plan far exceeding the 401K amount.  For example, a 61 year old can have the company contribute up to $274,000 or so of pre tax money, which of course reduces K-1 taxable. this is in addition to the $60K or so 401K.  It sounds to good to be true.  If anybody has experience with this please write a reply. thanks


Not familiar with this.

Sounds great if you have tons of cash flow coming in. Will ask my accountant.



There are a lot of breaks for the self employed.  Unfortunately I think it is the wage earners getting hosed by taxes, especially the higher income wage earners.  My wife and I do pretty well, but 95% of it is w2 income, the rest are capital gains and dividends.  Taxes are crazy.



Did the 199A rule (20% for S-Corps) help you much for 2018's taxes?  Maximizing the reduction in taxable income (20% subject to limits related to payrolls and capital investments) might be something to look at.  It reduces the taxable corporate income and then the benefit (reduced taxable income) flows through  to the K-1's.  It is not impacted by distributions to the owners. 

I hadn't heard of the cash balance plan, but also don't want to give away part of the corporation.  Somebody still has to pay the taxes on any earnings on an S Corp.


If you make tax-deductible pension contributions to get your total taxable income below the $300k mark, you should be able to take full advantage of the 199A deduction. Once you're over the 300k mark, your 199A deduction is limited to 50% of W-2 wages paid by your proportionate share of the company's earnings (for some people this is quite limiting).


Cash value pension plans are the granddaddy of tax-deferred savings for the self-employed, particularly when you have maxed out other tax-advantaged savings vehicles like IRAs, 401ks and HSAs.

There are some catches - First, if you have formal W2 employees, you have to contribute for them as well as yourself. Second, you have to be able and willing to fund the program year after year, so you have less discretion versus a 401k with profit sharing on an annual basis and you have to make the funding decision in advance and based on real actuarial calculations of age, investment return, life expectancy, etc. Third, there are formal compliance costs needed beyond what is typical for the self directed accounts, so you have to be ready to pay those, and the documentation and recordkeeping is more strict. Definitely not a DIY solution so professional help is needed for administration.

That said, deferring taxes on over $250,000 of income on an annual basis can be attractive and these plans are usually ERISA qualified, so there is also some protection from creditors. You still will have the eventual required minimum distribution problem but that could be ways to mitigate that in the future.