Cash Balance Plan vs 401(k): Side-by-Side for Owners
Cash balance and 401(k) plans answer different questions for owner-led businesses. They're often used together — not in place of each other.
Key takeaways
- 401(k) is a DC plan funded mostly by employee deferrals.
- Cash balance is a DB plan funded by actuarial employer contributions.
- Cash balance allows much larger annual employer funding.
- Many owners run both, with 401(h) layered on the DB side.
Different vehicle types
401(k) is a defined contribution plan; cash balance is a defined benefit plan. That difference drives funding, risk, and limits.
Funding capacity
Cash balance plans can accept materially larger annual employer contributions, particularly for older owners. 401(k) deferrals are capped at statutory limits.
Stacked design
The common pattern: 401(k)/profit-sharing for the workforce, cash balance for accelerated owner contributions, and a 401(h) sub-account inside the cash balance plan for retiree medical.
Frequently asked questions
Availability, tax treatment, and plan design depend on the facts and circumstances of the employer, plan document, participant group, and applicable law. 401h.com provides general educational information only — not tax, legal, actuarial, investment, or ERISA advice. Consult qualified tax, legal, actuarial, and plan professionals.
401h.com Editorial
401h.com
The 401h.com editorial team publishes plain-English explainers on 401(h) retiree medical benefit plans. Educational only — not tax, legal, actuarial, investment, or ERISA advice.
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