What Is a Defined-Benefit Cash Value Plan?

There comes a point, especially for successful business owners and high-income professionals, when traditional retirement tools start to feel inadequate. You may be maxing out your 401(k), funding IRAs, and still realizing these vehicles won’t meaningfully move the needle on the retirement outcome you want.

As income rises, taxes become a growing drag, and the question shifts from how much to save to how to save efficiently and deliberately.

This is where a Defined-Benefit Cash Value Plan, commonly referred to as a cash balance plan, stands apart. Unlike a 401(k), which relies largely on employee contributions and market performance, a cash balance plan is designed to deliver a predetermined retirement benefit using a formal actuarial formula. This allows for substantially higher, tax-deductible contributions than most defined-contribution plans.

Each participant has a hypothetical account balance that grows annually through a pay credit and an interest credit, creating transparency and predictability within a defined benefit framework. These plans are funded primarily by the employer and can be adopted by nearly any business, including closely held companies and solo practices, making them especially effective for high-income owners and professionals during peak earning years.

For profitable businesses, the real advantage is acceleration. Cash balance plans allow owners to convert strong income years into large, tax-deductible retirement contributions while reducing current taxable income. At MyTimeEquity, these plans are often implemented through an integrated plan design that combines a cash balance plan with traditional pre-tax and Roth 401(k) components, allowing multiple qualified plans to work together in a coordinated structure.

Within MTE’s properly designed structure, contributions can often be front-ended and significantly larger than standalone plans allow. Depending on business demographics and profitability, annual contributions can reach $200,000 to $500,000 per partner while remaining compliant with IRS rules.

Execution remains disciplined and well-defined. The plan must be adopted by the business’s tax filing deadline (including extensions) to capture the intended deduction, with contributions made by that same deadline and ongoing actuarial oversight to ensure compliance.

A defined-benefit cash value plan, especially when implemented through MyTimeEquity’s integrated design, is a highly efficient way to turn peak income years into a defined retirement outcome with clarity and confidence.