Small Business

Adding a Cash Balance plan to a 401(k) Profit-sharing plan currently in place can allow owners to invest significantly higher contribution limits. 

This illustration is common for what we see for a small business. In this scenario the business has two owners (a husband-and-wife couple) along with four additional employees.  

The owner wanted to make the maximum allowable Cash Balance contribution for her age (68), which results in a total contribution of $580,150, including the 401(k) profit sharing plan. The Cash balance contribution largely depends on profitability, and only a 7.5% of pay contribution for all other employees is required. 

This allows this married couple to save nearly $230,000 in taxes. 

Do you have clients or prospects looking to accelerate retirement savings and reduce their tax burden? To receive a Cash Balance Overview with one of our dedicated FuturePlan Cash Balance experts, fill out this quick form here. 

Retirement Plan Illustration – 2024

*Important: If you want to obtain your own, or your client’s personalized scenario, please provide FuturePlan with a full, up-to-date owner and employee census in order to receive a customized plan design illustration. FuturePlan by Ascensus does not provide tax, legal, or accounting advice. This material has been prepared for informational and illustrative purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You or your client should consult your/their own tax, legal, and accounting advisors before engaging in any transaction. FuturePlan by Ascensus provides plan design, administration, and compliance services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services.

(Plan Limits) $23,000 for 401(k) plan; $7,500 catch-up; $46,000 profit sharing. This chart assumes a 45% tax bracket of combined federal and state taxes and taxes are deferred. The following assumptions also apply:

  • Maximum annual contribution amounts for the cash balance/defined benefit plan are calculated using 4% interest rates and assuming no pre-retirement mortality and using the latest available applicable mortality tables.
  • The maximum cash balance amounts assume a 3-year average compensation of at least $275,000 (the maximum annuity limit for 2024), and prior years of service.
  • The amounts needed to fund the cash balance/defined benefit plan may be reduced by a participant’s prior highest 3-year salary history if it is less than the IRS maximum annuity limit (as shown above) or below the IRS maximum compensation limits under 401(a)(27) (e.g., $345,000 for 2024, $330,000 for 2023, etc.) and other deduction limits may apply.
  • The amounts needed to fund in the cash balance/defined benefit plan will also be reduced if a participant participated in any prior cash balance/defined benefit plan of the employer or a related employer.
  • Further, amounts shown may be reduced if the cash balance/defined benefit plan is not covered by the Pension Benefit Guaranty Corporation (PBGC), which may limit the amount available to fund in any paired 401(k) profit sharing plan of the employer. (Plans typically not covered by the PBGC are professional service businesses with less than 26 active participants.)
  • It is also important to note that amounts shown are estimates and will vary depending on an employer’s demographics of owners and employees along with a myriad of other factors and considerations.

For details for a specific plan design, please call (877) CB-Plans or request a free Cash Balance illustration here. For further information about PBGC coverage see this link.

FuturePlan by Ascensus provides plan design, administration, and compliance services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services.