As a business owner, you’ve likely mastered the art of reinvesting in your company. But are you also investing strategically in your future?
Designing the right retirement plan is more than just a perk for employees — it’s a powerful tool for managing taxes, building wealth, and protecting your financial legacy. Two of the most effective options available to business owners are the 401(k) plan and the often-overlooked cash balance plan. When used together, they can create a tax-efficient retirement strategy that scales with your success.
Why Retirement Planning Matters for Business Owners
It’s common to think of retirement planning as something for employees, but for high-income business owners, it’s a unique opportunity to:
- Maximize tax-deferred savings
- Reduce taxable income during peak earning years
- Accelerate wealth accumulation outside your business
- Offer a competitive benefit to recruit and retain talent
The key is knowing which plans to use — and when.
The 401(k) Plan: A Powerful Starting Point
A 401(k) remains one of the most flexible and widely used retirement plans available to businesses of all sizes. It allows employees — and you as the owner — to contribute pre-tax or Roth dollars up to IRS limits.
In 2025, the total contribution limit for those aged 50+ (including employer contributions and catch-up contributions) is $77,500. Or if you're 60, 61, 62, or 63, the limit is $81,250.
401(k) plans can be customized in many ways:
- Traditional or Roth options for tax flexibility
- Employer matching or profit-sharing
- Safe Harbor plans to simplify IRS testing and allow max contributions for owners
For many businesses, a 401(k) is the foundation of a great plan. But for high earners, that ceiling can come up quickly.
When the 401(k) Isn’t Enough: Consider the Cash Balance Plan
If you're already maxing out your 401(k) contributions and still looking for ways to save more, reduce taxes, and fast-track retirement — a cash balance plan could be the next step.
A cash balance plan is a type of defined benefit plan (like a pension), but it looks and feels like a 401(k) with a guaranteed return and an account balance tied to your name.
Depending on your age, you may be able to contribute an additional $100,000 to $300,000+ per year — all tax-deductible to your business.
Ideal candidates for a cash balance plan include:
- Business owners with consistently high income
- Those who have already maxed out 401(k) contributions
- Professionals nearing retirement who want to catch up quickly
- Firms with a small or younger staff
The Power of Combining Plans
One of the best-kept secrets in retirement planning? You don’t have to choose between a 401(k) and a cash balance plan — you can have both.
This strategy allows you to:
- Stack tax-deferred savings into the high six figures annually
- Create a flexible plan design that favors the owner(s) while meeting IRS compliance
- Maintain predictable funding requirements and long-term growth
What to Watch Out For
While these plans offer significant benefits, they also come with responsibilities:
- Annual funding requirements (especially with a cash balance plan)
- Administrative complexity and actuarial oversight
- Employee participation requirements to meet IRS non-discrimination testing
That’s why partnering with the right financial advisor and third-party administrator is essential. A well-structured plan can provide control and flexibility, while an off-the-shelf setup could leave you overpaying or underutilizing your options.
Ready to Build a Smarter Retirement Strategy?
If you’re a high-income business owner ready to go beyond the basics, it’s time to consider what a custom retirement plan could do for you.
At Johanson & Yau, we can explore how a 401(k) and cash balance plan can work together to reduce taxes, grow your wealth, and create a retirement strategy worthy of the business you’ve built.
Schedule a consultation with our team to learn what’s possible.
Investments are subject to market risks including the potential loss of principal invested. Past performance is not a guarantee of future results. This information is intended to be educational and does not reflect any particular investment or investment needs of any specific investor. Employees who withdraw funds in a 401(k) plan before age 59½ may have to pay a 10% tax on any withdrawals, in addition to any regular income tax. Retirement plan withdrawals may be subject to taxation and penalties when withdrawn early.
Sources:
https://www.investopedia.com/retirement/401k-contribution-limits
https://www.investopedia.com/terms/c/cashbalancepensionplan.asp
https://www.journalofaccountancy.com/issues/2023/jan/rise-of-the-cash-balance-pension-plan/