Cash Balance Plans Explained: EDU #2552

11 snips

Dec 24, 2025

Steve Sansone, a retirement plan specialist, dives into the intricacies of cash balance plans—hybrid defined benefit arrangements that appeal to high-income business owners. He explains how these plans allow for significant tax-optimized contributions and discusses who they’re designed for, emphasizing the importance of demographics. The conversation also tackles the trade-offs, potential pitfalls, and the essential commitment requirements, making it clear these plans aren't one-size-fits-all solutions but can offer substantial benefits when implemented correctly.

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INSIGHT

Valley Of Opportunity Matters

The 'tax planning window' or 'valley of opportunity' is when income drops after retirement but before RMDs, offering low-tax distribution chances.
Moving to a lower-tax state or using that window can materially reduce taxes on large pre-tax balances.

INSIGHT

Hybrid Structure Explains The Power

Cash balance plans live in the defined benefit world but present as account balances like a 401(k).
That hybrid status gives access to generous defined benefit formulas while showing owner-friendly account balances.

INSIGHT

Very Large Late-Career Savings

Cash balance plans allow much larger pre-tax contributions than defined contribution limits, especially late-career.
They can translate into actuarial lump sums up to roughly $4 million for maximum lifetime benefits.

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Chris’s Summary
Jim and I are joined by Steve Sansone as we discuss cash balance plans and explain how they function as hybrid defined benefit plans that present as account-based arrangements. We cover who these plans are designed for, including high-income business owners and professional groups, how age and employee demographics affect feasibility, and why allowable contribution levels can far exceed defined contribution limits. We also outline nondiscrimination rules and how they are applied, employer commitment requirements, and other general setup considerations.

Jim’s “Pithy” Summary
Chris and I are joined by Steve Sansone as we take a deeper dive into cash balance plans and why they show up in very specific situations, not as a one-size-fits-all solution. Steve explains how these plans sit in the defined benefit world but look like a defined contribution account, which is where a lot of confusion starts. We spend time on who they’re actually built for, why high-income professionals tend to be the ones asking about them, and why the contribution numbers can look startling if you haven’t seen the mechanics before.

We also talk through the tradeoffs, because these plans are not free money and they are not magic. Steve walks through how demographics drive everything, why age gaps between owners and employees matter, and how employer contributions to staff are part of the deal. We discuss why, in the wrong situation, these plans can pour fuel on the fire of a future tax problem, and why, in the right situation, they can make sense when paired with intentional planning during the retirement tax planning window before required minimum distributions begin. We frame that discussion around the same planning lens we use elsewhere on the show, including how the 2-1-0 Tax Ordering Number concept helps evaluate whether the front-end tax benefit is worth the back-end complexity.

The post Cash Balance Plans Explained: EDU #2552 appeared first on The Retirement and IRA Show.