What Is a Cash Balance Plan — and How It Can Help High Earners and Medical Practice Owners Save Six Figures in Taxes

For successful medical professionals and business owners, the challenge often isn’t income — it’s tax efficiency.

While traditional retirement plans like 401(k)s and profit-sharing plans are valuable, they often fall short for high earners who want to significantly reduce current taxes while accelerating retirement savings. This is where a Cash Balance Plan can become a powerful planning strategy.

What Is a Cash Balance Plan?

A Cash Balance Plan is a type of defined benefit retirement plan that combines the structure of a traditional pension with the clarity of a defined contribution plan.

Participants receive a “hypothetical account” that grows annually through:

• A pay credit (employer contribution), and

• An interest credit (typically a fixed or indexed rate)

  
  

Unlike a 401(k), contribution limits are not capped at relatively low annual amounts. Instead, allowable contributions are based on factors such as age, income, and plan design — often enabling six-figure annual contributions for owners and key professionals.

Why Cash Balance Plans Are So Effective for High Earners

When structured properly, cash balance plans can deliver several meaningful advantages:

• Substantially higher tax-deductible contributions

• Immediate reduction in taxable income

• Accelerated retirement accumulation

• Tax-deferred growth

• Strategic flexibility when coordinated with other retirement plans

  
  

For physicians and medical practice owners in peak earning years, these benefits can translate into significant annual tax savings.

Who Is a Good Fit for a Cash Balance Plan?

Cash balance plans tend to work best for:

• Medical professionals earning $300,000+ annually

• Practices with stable and predictable cash flow

• Owners within 10 years of retirement, or those looking to “catch up”

• Practices with manageable employee demographics

• Business owners already maximizing 401(k) contributions

  
  

Because these plans are governed by IRS and ERISA rules, thoughtful design and coordination are essential.

How Mainstreet Synergy Group Approaches Cash Balance Planning

At Mainstreet Synergy Group, we view cash balance plans as part of a broader strategic framework, not a standalone solution.

Our process includes:

• Collaborating with your CPA and third-party administrator

• Stress-testing contributions against cash flow

• Designing plans that align with long-term business and exit goals

• Ensuring compliance while optimizing owner outcomes

  
  

Case Study: Medical Practice Owner Using a Cash Balance Plan to Reduce Taxes

Practice Profile

• Practice Type: Specialty Medical Practice

• Owner Age: 55

• Annual Compensation: ~$900,000

• Employees: 8

• Existing Plan: 401(k) with profit sharing

  
  

The Challenge

Despite fully funding a 401(k) and profit-sharing plan, the physician continued to face a substantial annual tax burden. Traditional retirement strategies were no longer sufficient to meaningfully reduce taxable income during peak earning years.

The Strategy

Mainstreet Synergy Group worked with the practice’s CPA and third-party administrator to implement a Cash Balance Plan layered on top of the existing 401(k).

The plan was designed to:

• Maximize tax-deductible contributions for the owner

• Keep employee funding requirements reasonable

• Align with the physician’s anticipated 7–10 year retirement horizon

  
  

Annual Retirement Contributions

Plan Type	Annual Contribution
401(k) Employee Deferral + Catch-Up	$30,500
401(k) Profit Sharing	$43,000
Cash Balance Plan	$225,000
Total Annual Contribution	$298,500

Estimated Tax Impact

Description	Amount
Total Tax-Deductible Contributions	$298,500
Estimated Combined Marginal Tax Rate	~40%
Estimated Annual Tax Savings	$115,000+

Actual results vary based on plan design, income, tax rates, and individual circumstances.

Long-Term Outcome

Over a 7-year period, this strategy allowed the physician to:

• Redirect nearly $2 million into tax-advantaged retirement assets

• Reduce cumulative tax exposure by several hundred thousand dollars

• Maintain flexibility to freeze or terminate the plan as retirement approached

  
  

Key Takeaway

For medical professionals, a cash balance plan can be one of the most powerful tax strategies available when implemented correctly — transforming tax liabilities into long-term retirement wealth.

Final Thoughts

If you are a medical practice owner frustrated by high tax bills and limited retirement contribution options, a cash balance plan may provide opportunities that traditional planning alone cannot.

The goal isn’t simply deferring taxes — it’s strategically repositioning them.

📞 Interested in exploring whether a cash balance plan is appropriate for your practice? The team at Mainstreet Synergy Group can help evaluate the strategy and coordinate with your existing advisors.

Compliance Disclaimer

This material is for educational and informational purposes only and does not constitute tax, legal, or investment advice. Cash balance plans are subject to complex IRS and ERISA rules and are not suitable for every business or individual. Plan design, contribution limits, and tax benefits vary based on individual circumstances. You should consult with your CPA, tax advisor, and qualified professionals before implementing any retirement or tax strategy.