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Though traditional 401(k) and 403(b) plans can be effective, their contribution limits often make them less attractive to high-income partners and executives, who are often searching for ways to save more and reduce corporate taxes. Cash Balance plans, on the other hand, offer an accelerated savings vehicle that allows for increased contributions and significant tax advantages. In this article, we explore how Cash Balance plans can support executive retention and reduce individual and corporate taxes in 2026.
As shown in the contribution chart below, Cash Balance plan contribution limits are significantly higher compared to 401(k) plans, and scale significantly faster with age. For example, a 55-year-old executive could contribute nearly 800% more to a Cash Balance plan than a 401(k) in 2026.
Moreover, these plans are not mutually exclusive. An organization offering a 401(k) or Profit-Sharing plan can provide a Cash Balance plan in tandem. In fact, the combination is often the most advantageous to participants, as it provides even greater contribution limits and flexibility.
| Age | 401(k) Elective Deferral | Profit-Sharing | Max Cash Balance Contributions | Combined Plan Total |
| 35 | $24,500 | $47,500 | $97,000 | $169,000 |
| 40 | $24,500 | $47,500 | $124,000 | $196,000 |
| 45 | $24,500 | $47,500 | $159,000 | $231,000 |
| 50 | $32,500 | $47,500 | $204,000 | $284,000 |
| 55 | $32,500 | $47,500 | $262,000 | $342,000 |
| 60 | $35,750 | $47,500 | $336,000 | $419,250 |
| 65 | $32,500 | $47,500 | $349,000 | $429,000 |
Cash Balance plans also offer several tax advantages for individuals and organizations when compared to 401(k) plans, including:
For partners, especially in professional services firms, the difference in potential tax savings for a 401(k) and a Cash Balance plan is even more dramatic than the higher contribution limits. Imagine a partner in the 37% tax bracket receives $200,000 as their share of yearly profits.
In the 401(k) scenario, they take those profits as cash, since their 401(k) is likely capped out. Taxes remove a significant chunk, roughly 41% with Social Security and Medicare included, and the remaining $118,000 is invested and further affected by dividends and capital gains taxes.
In the Cash Balance scenario, the additional $200,000 could be moved into the Cash Balance plan before becoming subject to taxes, effectively saving the $82,000 loss in the 401(k) scenario. The total $200,000 could then grow tax-deferred before being transferred to an IRA when the partner leaves.
Cash Balance plan contributions are also considered business expenses and are 100% tax deductible. Therefore, the higher contribution limits on Cash Balance plans can reduce profits that would otherwise be subject to tax.
Unlike 401(k) plans, organizations with W2/salaried employees may see payroll savings with a Cash Balance plan, as these contributions are not considered wages and therefore are not subject to FICA tax. However, LLP partners would still pay FICA, as Cash Balance contributions are considered part of their net earnings when calculating self-employment tax.
Though we’ve covered the design differences of a Cash Balance plan and 401(k), there are a few recent regulatory and accounting considerations to keep in mind in 2026.
With the Secure Act 2.0, 401(k) plans now allow individuals age 60-63 to save an additional $11,250 each year. Though this is significant for 401(k) participants, it does not exceed the savings potential of Cash Balance plans.
Though Cash Balance plans offer the advantages above, many CFOs were cautious about implementing them. This was largely due to the risk of underfunding the plan and creating additional expenses at the end of the year.
However, Cash Balance plans received an additional advantage in recent years. The introduction of a variable-rate interest credit, often called Market-Based Cash Balance plans, allowed cash balance designs to align the interest credits with the growth in plan assets, thereby eliminating the risk that the assets and liabilities will grow differently.
On January 14th, 2026, the Board of the FASB took a big step towards clarifying the accounting treatment for Market-Based Cash Balance plans. Once finalized, these steps will mean that well-managed daily-valued Market-Based Cash Balance plans will be immune from the accounting risk and volatility typical of defined benefit pension plans. To learn more about this update, see October Three’s commentary on the FASB’s approved recommendations, including the issue, proposed solution, and current status.
Naturally, adopting a Cash Balance plan is not a quick process. The following are a few additional areas CFOs should be aware of to manage risk.
Select an Appropriate Interest Crediting Rate and Frequency: While there may be choices for selecting an interest crediting basis, selecting a market-based rate of return is the only logical choice to eliminate volatility and risk from the plan design. In addition, the frequency of providing the interest credits is also a critical step in eliminating risk. For example, updating account balances to reflect actual investment performance once a year ensures that the assets and liabilities will be perfectly aligned when the interest credit is applied. But every other day of the year, the assets will have moved, and the liabilities will remain stagnant. Crediting market interest more frequently, including daily, reduces risk and ensures that whenever someone takes a distribution from the plan, their account balance being distributed will reflect all of the asset performance, good or bad, prior to their distribution.
Align the Cash Balance Plan with Other Retirement Plans to Avoid Nondiscrimination Testing Issues: Nondiscrimination Testing ensures rank-and-file employees receive a benefit before owners and executives can establish a plan. Optimizing this process can ensure requirements are met without significantly increasing costs.
Construct an Appropriate Investment Strategy for the Plan: In general, if the goal of the plan is to provide enhanced tax deferral opportunities, then a modest investment strategy is often appropriate. If instead the plan is more of a company-based, broad retirement benefit, then a more robust, long-term investment strategy may be appropriate.
Unlike 401(k) plans, Cash Balance designs offer executives and partners more ways to save for retirement and reduce taxes, especially as they prepare to transition out of their careers. Whether you need to reward key executives, reduce tax exposure, or boost retention with long-term wealth-building benefits, October Three can help. Request your Cash Balance illustration today.