How Flexible Are Cash Balance Plan Contributions? Here’s What You Need to Know

You just wrapped up a record-breaking year. Income was high, profits were strong, and now your CPA is telling you to consider a Cash Balance Plan (CB plan) to cut the tax bill.

It sounds great on paper: you can contribute well into six figures and take a massive deduction. But there’s one hesitation holding you back:

“If I put in $200,000 this year… will I be stuck doing that forever?”

This is one of the most common concerns we hear from law firm partners and high-income business owners. When income fluctuates or when retirement still feels a decade away, the idea of locking into a big annual payment can feel risky.

Here’s the good news: CB plans are built to flex with your income, within clear, legal IRS limits. You’re not committing to the same contribution every year. You have options. And if your income takes a dip next year, you won’t be forced into a number that doesn’t make sense.

In this article, we’ll break down how contribution flexibility works, when and how funding can be adjusted, and what your real options are during a low-income year. If the fear of rigid obligations is holding you back, you’re about to see why this plan is more strategic and more adaptable than you might think.

What the IRS Allows: Annual Contribution Ranges

One of the biggest misconceptions about CB plans is that once you start funding them, you’re stuck making the same contribution year after year. In reality, the IRS gives you a built-in range that is calculated annually, so you can adjust your contributions based on what makes sense for your income and cash flow.

Here’s how it works:

Every CB plan has two funding thresholds each year:

• Minimum Required Contribution (MRC): This is the minimum amount you must contribute to keep the plan compliant and on track with the promised benefits. It’s often lower than your target contribution, especially if the plan has already been funded conservatively in prior years.
  
  
• Maximum Deductible Contribution (MDC): This is the most you can contribute in a given year while still receiving full tax deductibility. This number takes into account age, interest crediting rate, plan design, and actuarial assumptions.
  
  

Between those two limits is your funding range, and that’s where the flexibility lives.

For example, if your plan was set up with a target contribution of $150,000, your funding range might be $110,000 to $185,000. You don’t have to hit the high end every year. You don’t even have to match last year’s number. You simply choose where you want to land, based on how your year went.

These ranges are recalculated annually by your actuary, using IRS-approved formulas. So you’re not guessing or trying to do math on your own. You get a clear report showing your minimum and maximum contribution, along with a recommended amount, often with some room to play.

This flexibility is legal, intentional, and fully compliant with IRS rules. It's not a loophole, it’s how the plans are designed to work.

And with the right plan design, your range can be even more accommodating. Factors like timeline, interest crediting rate, and initial funding strategy all influence how much room you’ll have to adjust contributions from year to year.

What If You Can’t Contribute as Much Next Year?

Let’s say the next year isn’t quite as strong. Maybe revenue dipped. Perhaps you’re holding back cash for a new hire or office expansion. Whatever the reason, you’re not looking to make another six-figure contribution, and you don’t have to.

As long as your contribution meets or exceeds the Minimum Required Contribution (MRC), you’re still in full compliance. That means you can hold back funding to the lower end of your range without triggering penalties, fees, or plan failure.

So, when exactly can you reduce contributions? Every year.

CB plan contributions are reviewed annually. You’ll get a fresh funding report from your actuary showing your new minimum and maximum range, based on updated calculations. From there, you decide where to land. These decisions are best made before the plan year ends, so your actuary can model options within IRS limits and help prevent last-minute compliance issues.

The actual number depends on several variables, including:

• Your plan’s interest crediting rate (ICR)
• How much you’ve contributed in prior years
• Whether your plan is ahead or behind its funding targets
• Any design features you’ve built in for flexibility

The goal is to communicate early, ideally before the plan year ends. That gives your actuary time to model different contribution levels and ensure everything stays within IRS guidelines. It’s not about guessing what you can do; it’s about planning for what you want to do.

And if you’re working with a qualified team, those adjustments won’t be disruptive. They’ll be baked into the plan’s annual rhythm, giving you room to adapt without stress.

How to Manage Your Cash Balance Plan When Income Takes a Hit

Some years, scaling back a contribution isn’t enough. You might need to reduce funding to the minimum or explore formally freezing the plan if necessary. So what happens if you simply can’t afford to fund the plan?

First, the reality: CB plans aren't all-or-nothing, but they are regulated. You can’t skip a year without a plan in place. That said, you’re not stuck. There are several options available to keep your plan in good standing while protecting your cash flow.

Option 1: Fund at the Minimum

Every year, your actuary calculates the Minimum Required Contribution (MRC). This is the lowest amount you can contribute while still meeting IRS compliance. It’s often significantly lower than your usual target and is devised to give you breathing room when needed.

For example, if your typical target is $150,000, the MRC might be closer to $80,000 or potentially lower, depending on prior contributions, plan performance, and actuarial assumptions.

Option 2: Freeze the Plan

If you’re facing sustained cash flow issues or expect reduced income for more than a year, you may consider freezing the plan. This means no new benefits accrue for the year, and contributions are paused.

A freeze must be adopted before year-end and usually involves a formal plan amendment. It’s not automatic and should be modeled carefully to avoid underfunding risks. You’ll still be responsible for any previously accrued benefits, but no new obligations are added. This option is commonly used during ownership transitions, business downturns, or other financial shifts, and it can be a smart move when planned properly.

Option 3: Shift Contributions to Other Plans

Many high-income earners pair their CB plans with a 401(k) or Profit Sharing Plan. These plans typically offer more flexibility, lower funding requirements, and still deliver meaningful deductions.

In a low-income year, you may pause or reduce your CB Plan contribution and instead fully fund your 401(k), including the employee deferral, employer match, and profit-sharing portion. This strategy keeps your retirement savings on track while reducing your financial commitment for the year.

These options only work if you plan for them in advance. Once the year wraps up, your choices narrow quickly. But if you loop in your actuary early, you’ll have room to adjust without scrambling. Regular check-ins help you stay on track and make sure the plan fits your situation, year after year.

What Impacts Your Contribution Flexibility

If your income tends to vary, the smartest thing you can do is build that reality into the plan from day one. The flexibility you’ll have later depends heavily on how the plan is structured at the start.

A well-designed CB plan isn’t just about hitting a high contribution target; it’s about giving yourself room to adjust when things shift. That range doesn’t happen by accident. It’s influenced by a few core levers your actuary can shape during setup.

Here’s what makes the difference:

Longer Timelines

If your plan is structured to play out over 10 to 15 years, rather than being compressed into 3 to 5, you’re giving yourself more breathing room each year. The longer the runway, the lower the pressure to hit high targets annually. That opens up a wider funding range and makes it easier to scale contributions based on the business's performance, not just what the plan dictates.

Conservative Interest Crediting Rates (ICRs)

The ICR sets the assumed rate of return inside the plan. The lower it is, the less growth the plan is expected to generate on its own, and the more flexibility you’ll have to adjust contributions. Conservative ICRs can create more manageable annual targets and help prevent sudden increases in required funding down the line. You’re effectively reducing volatility.

Realistic Starting Assumptions

It’s tempting to build the plan around a significant deduction in a great year. But if your starting target is too aggressive, it can tighten your future funding range. A more stable approach, based on average earnings, keeps the plan flexible year to year. You can always fund more when cash flow allows, but you're not boxed into an unrealistic floor during slower years.

On the other hand, a short runway or overly aggressive target can leave you with a narrow contribution range. That might work if your income is steady, but if you want the flexibility to scale back when needed, the plan needs to reflect that from the start.

This is where thoughtful planning makes the difference. A templated plan might check the compliance boxes, but it won’t reflect your income patterns, cash flow needs, or long-term goals. Custom design gives you more control and fewer surprises.

Recent IRS guidance under SECURE 2.0 (Notice 2024‑2) also introduced more flexibility in how plans can credit interest, especially with graded interest rates, opening the door to even more adaptable plan designs.

What Contribution Flexibility Looks Like in Practice

It’s one thing to say CB plans are flexible. It’s another to see what that means in numbers. Here are three sample scenarios that show how much room you may have to adjust:

• A partner in their early 50s, aiming for maximum tax savings
• A younger partner who wants flexibility to ramp up contributions over time
• A late-career partner optimizing for a few high-contribution years before retirement
  
  

These numbers reflect what we typically see in the field. Each range is calculated by your actuary each year, taking into account plan performance, prior contributions, age, interest crediting rate, and IRS limits.

And remember, you don’t have to fund at the top end. The plan gives you a choice. Whether you want to stay closer to the floor, land in the middle, or max it out depends on how your year looks.

Stop Thinking Fixed. Start Thinking Flexible.

CB plans aren’t rigid. They give you room to adjust based on how your income moves. When structured the right way, they give you absolute control over how much you contribute each year, within clear IRS limits. You’re not locked into your biggest year. You’re operating within a flexible range that reflects your actual earning patterns.

Whether you’re riding high or taking a cautious year, the plan meets you where you are. You can contribute more when it makes sense, and scale back when needed. And if you’re thinking long term, that kind of control becomes even more valuable.

The bottom line: If you’re holding back because you think this plan is too fixed, it’s time to take a second look.

FAQs

1. Can I lower CB plan payments in a slower income year?
   
   Yes, you can. CB Plan contribution flexibility allows you to reduce your funding within IRS-approved limits. You don’t have to contribute the same amount every year, your actuary will calculate a funding range annually, and you can choose an amount that fits your cash flow.
   
   
2. How much contribution flexibility does a CB plan offer?
   
   A lot more than most people think. Depending on your age, income, and how the plan is structured, your annual funding range can vary by tens of thousands of dollars. CB Plan contribution flexibility is built into the system and recalculated each year.
   
   
3. What are the IRS funding limits for a CB plan?
   
   Each year, your plan’s actuary will determine two figures: the Minimum Required Contribution (MRC) and the Maximum Deductible Contribution (MDC). Your actual payment can fall anywhere in between, giving you a compliant and strategic way to manage contributions.
   
   
4. Can I pause my CB plan contributions entirely?
   
   In some cases, yes, but you’ll need to work with your actuary and administrator to either contribute the minimum required or officially freeze the plan for the year. While not automatic, this is a known strategy for handling low-income or high-expense years.

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.