That’s often the first reaction when someone hears about Cash Balance Plans (CB plans):
If I can defer $100,000 to $300,000 in taxes and stay compliant, why isn’t everyone doing this?
It’s a fair question. With financial gimmicks and fine print all around, it’s smart to be skeptical. And when something sounds this efficient, IRS-qualified, fully above-board, it’s natural to wonder whether it’s too good to be true.
But CB plans aren’t new. They’ve been around for decades, written into the tax code, certified by actuaries, and used quietly by law firms, medical practices, and other high-income professionals who want to keep more of what they earn without crossing any lines.
So why haven’t you heard of them?
Because they are not made for mass marketing, you won’t see them on TV ads or investment apps. They’re not one-size-fits-all. The firms using them aren’t publicizing it because these plans are tailored, managed quietly, and not reliant on mass adoption to be effective.
Read on to find out what makes CB plans completely legitimate, how IRS rules govern them, why actuaries play a central role, and why smart professionals are using them behind the scenes.
Yes, CB plans are IRS-qualified tax strategies you can use to cash in massive contributions year after year. They’ve been around for decades, but they’re not built for mass appeal, which is precisely why they work so well for high earners.
CB plans aren’t a trendy workaround or a creative tax hack. They are a well-established category of retirement plan, defined in the Internal Revenue Code and backed by decades of legislation and regulatory oversight.
They first gained traction in the 1980s, and the Pension Protection Act of 2006 clarified and strengthened their legal framework. Today, CB plans are widely recognized as a modern variation of Defined Benefit Plans (DB plans), offering more contribution flexibility and making them especially appealing to high-income professionals.
Here’s what makes them entirely legitimate in the eyes of the IRS, actuaries, and financial advisors:
CB plans comply with IRC §§401(a), 412, and 415, meaning contributions are tax-deductible, grow tax-deferred, and distributions are taxed like other retirement income
The Employee Retirement Income Security Act (ERISA) sets rules for fiduciary responsibility, funding requirements, and participant protections. CB plans fall under this framework, ensuring that they meet the same standards as traditional pension plans.
IRS Guidelines (Read This First)
A full discussion of the topics below is beyond the scope of this article. Every plan is different and must have an experienced enrolled actuary to interpret the rules and determine how they apply to your specific, customized plan design.
The IRS publishes annual benefit limits and key funding/valuation rates (for example, the §415 limits and the §417(e)/§430 segment rates) and issues periodic regulatory guidance. Your plan design and administration team uses these published limits and rates each year to set your certified contribution range and to confirm the plan’s funding status.
A qualified CB plan requires an enrolled actuary to calculate minimum and maximum contributions and to certify annual funding (e.g., by signing Schedule SB for plans that file Form 5500). If that actuarial certification isn’t obtained, the plan has a compliance failure and may face penalties until corrected.
For one-participant plans, the information is provided to the IRS by filing Form 5500-EZ. (There is no Schedule SB filing for single-member plans) The actuary still performs and signs the annual funding valuation retained with the plan’s records.
A lean W-2 headcount helps plan efficiency, but your actuary must test coverage using the correct employee universe. Leased employees and, in some cases, misclassified contractors may count for coverage/nondiscrimination under the rules (e.g., §414(n)). Your actuary will flag and model these classifications before certifying compliance.
In short, CB plans are built on formulas. They follow clear rules and require licensed professionals to model and maintain them. This structure is precisely what makes them suitable for firms and partners who want to defer significant income without crossing any lines.
One of the most common misconceptions about CB plans is that they’re some kind of advisor-created workaround. They’re not.
Every CB plan is developed and signed off by an enrolled actuary. These credentialed professionals are responsible for designing the strategy, calculating contribution ranges, and ensuring the plan remains compliant with IRS regulations each year.
Here’s how they structure the plan:
The actuary designs the benefit within the §415(b) limits and reverse-engineers the annual pay credits needed to reach the target at your retirement age, using required IRS rates/tables. That’s why a 52-year-old high earner may be certified to contribute far more than a younger partner—the actuary’s math and statutory limits drive the range
Actuaries determine both the minimum and maximum contribution amounts for each year.
The maximum is based on IRS limits and actuarial formulas. The minimum ensures the plan remains adequately funded under ERISA rules. These boundaries provide the partner with flexibility (within reason) while guaranteeing full compliance.
This matters for year-to-year planning. For example, if income varies slightly, the contribution can be dialed up or down, within the certified range, without triggering penalties or overfunding issues.
Every CB plan must be reviewed and recertified annually. The actuary prepares a valuation report that accounts for all plan activity, including contributions made, interest credited, and any changes to participant status (such as retirement or departure).
They also conduct nondiscrimination tests and funding calculations to ensure the plan continues to meet IRS and ERISA standards. This way, the CB plan evolves with your practice, and the actuary ensures it stays within the rules.
All contribution calculations and plan activity are backed by formal filings. These include IRS Form 5500, Schedule SB, and the actuarial valuation report, which are documents that your CPA and plan administrator rely on to maintain your deduction and demonstrate compliance. If the IRS ever audits the plan, the paper trail is already in place. It’s not just transparent. It’s built to withstand scrutiny.
Actuaries don’t just keep the plan compliant; they help protect it from becoming a burden later.
They monitor funding levels, flag potential overfunding issues, and ensure the benefit formula stays reasonable as the firm grows or shifts. This is especially important for firms that may add new partners, bring in associates, or scale back income in certain years.
Having an actuary in your corner means the plan stays aligned with your goals and out of trouble with the IRS.
So why do most professionals learn about CB plans late, if at all? It comes down to three things: they’re niche, they’re personalized, and they’re not built for broad promotion.
CB plans aren’t packaged like IRAs or 401(k)s. They don’t come preloaded in your payroll system or show up in retirement plan brochures. They require custom design, annual oversight, and a level of income that excludes most of the population. That makes them a poor fit for mainstream financial products or large-scale advisory firms trying to serve thousands of clients with one-size-fits-all plans.
If your primary retirement planning has come through employer benefits or retail investment platforms, you simply wouldn’t have seen this option.
CB plans are highly effective, but only for the right financial profile. They make the most sense for professionals with high, stable income and discretion over how much they set aside each year.
That often means high-earning law partners.. Individuals who’ve already maxed out their 401(k) and profit-sharing accounts and still want to reduce their taxable income in a meaningful way. If your income is consistent and you’re trying to stay under the next tax bracket, this is one of the few strategies that work.
The firms using CB plans have no reason to promote them. Once a plan is in place, it’s managed quietly behind the scenes by a CPA, an actuary, and an administrator. There’s no marketing campaign. No webinar. No need to “spread the word.” The partners contributing to these plans are too busy running their firms, and frankly, most are happy to keep their tax strategy private.
That’s why so many high earners wonder why they haven't heard of CB plans. It’s not because it doesn’t work. It’s because the people using it aren’t selling it; they’re just using it to keep more of what they earn.
Get clarity on how much you could be saving before another tax payment goes out.
CB plans aren’t theoretical. Firms, practices, and partnerships are currently using it. What these firms have in common isn’t size. It’s control. They have partners or owners earning $400,000 or more, flexible enough to make decisions at year-end, and tired of seeing 32% to 37% of their marginal income disappear in taxes. Here are a few examples of how CB plans are being used:
A partner maxed out her 401(k) and profit sharing, contributing $76,500 per year. But with no depreciation strategies left and rising tax pressure, her CPA partnered with an actuary to model a CB plan.
Her CB plan allowed her to contribute an additional $220,000 that year, entirely deductible.
This brought her taxable income back under the 32% threshold and helped her avoid crossing into the 35% bracket. Over the next 10 years, she’ll accumulate over $2 million in tax-deferred retirement savings without touching her lifestyle.
A dental practice yields an annual income of $480,000. With steady income and minimal W-2 staff, the practice was a prime candidate for a CB plan. The owner’s CPA had never mentioned CB plans until a peer brought it to their attention. Once modeled, the plan allowed the owner to contribute $180,000 in the first year, far exceeding the $30,000 they were accustomed to in their 401(k).
Two partners at a firm, each earning over $400,000, are seeking more effective retirement strategies. A custom CB plan enables each of them to contribute over $200,000 in deductible income, utilizing a partner-weighted contribution model that keeps the plan lean and cost-effective. What they have to say after year one: Why didn’t we do this five years ago?
CB plans aren’t for everyone, but if you’ve made it this far, there’s a good chance you’re in the range where it starts to matter. Here’s what makes someone a strong candidate for a CB plan:
If your income puts you into the 32%, 35%, or 37% federal bracket, a CB plan can help reduce your taxable income, potentially pulling you back into a lower bracket entirely. Even if you’re already contributing to a 401(k) or profit-sharing plan, that typically caps out at ~$76,500. A CB plan can add another $100,000–$300,000 or more in deductible contributions.
Suppose you’ve already maxed out your existing retirement plans, are not making substantial capital in assets that can be depreciated, and don’t want to manufacture deductions with end-of-year spending. In that case, a CB plan gives you a clean, IRS-supported alternative.
Timing is coordinated with your actuary. Employer contributions are generally deductible for the prior year if deposited by your tax return due date (including extensions), while minimum-required funding deadlines still apply (and quarterly installments may be required). Your actuary and administrator calendar these dates and confirm deposits are “on account of” the intended plan year.
If you’re in your 40s, 50s, or early 60s and want to accelerate retirement savings while reducing your current tax load, a CB plan lets you do both. These plans are especially powerful when you have just a few high-income years left or want to maximize tax deferral before selling your firm or scaling back.
CB plans aren’t new. They’re not risky. And they’re certainly not a loophole. They’re a fully compliant, IRS-qualified strategy devised for high earners who are tired of paying a third of their income in taxes, and are ready to explore something more efficient.
They’ve been used for decades by firms that don’t advertise them, certified by actuaries who don’t guess, and supported by IRS guidance that’s updated every year.
If you’ve never heard of a CB plan until now, that’s not a red flag. It simply means you’ve reached a level of income where this kind of planning becomes a significant consideration.
Check if a Cash Balance plan could help you defer more before the next payment.
Disclosure: The information provided on this website is for general informational and educational purposes only and is not intended as legal, tax, or investment advice. Actual tax savings will vary based on your individual circumstances, including filing status, income level, existing retirement plans, and other deductions. Cash Balance Plans and other retirement strategies must be carefully structured and administered to comply with IRS regulations. You should consult with a qualified tax advisor, financial planner, and/or pension specialist before implementing any strategy discussed here.