Cash Balance Pension Plans

Cash Balance Plans are IRS-qualified retirement plans that allow high-income professionals and business owners to make large tax-deductible contributions toward retirement. Unlike a traditional defined benefit plan, the account balance grows annually with a fixed or indexed interest credit. These plans combine the benefits of a pension with the clarity of a 401(k)-style account balance, often allowing contributions over $300,000 annually based on age and income.

Key Benefits:

• Tax-deductible employer contributions reduce personal and business income tax
• Contributions grow tax-deferred
• Offers higher limits than 401(k) and profit-sharing plans
• Ideal for professionals over age 45 with steady income
• Can be combined with a 401(k) for additional tax savings

Considerations:

• Requires annual funding and actuarial compliance
• Involves plan setup and administrative costs
• Best suited for businesses with few employees or flexible plan design

412(e)(3) Fully Insured Pension Plans

412(e)(3) plans are defined benefit plans funded exclusively with fixed annuities and whole life insurance. This design eliminates investment risk and provides guaranteed retirement income. Contributions can be significantly higher than other qualified plans, making it ideal for business owners with consistent income seeking large tax deductions.

Key Benefits:

• Fixed, guaranteed retirement payouts
• Fully tax-deductible employer contributions
• No market volatility or actuarial uncertainty
• Higher allowable contributions than other plans

Best Fit For:

• Professionals (doctors, CPAs, attorneys) age 50+
• Small businesses with steady income and few employees
• Individuals looking for guaranteed income and estate benefits

Traditional Defined Benefit Plans

These classic pension plans promise a fixed income in retirement, calculated based on years of service and salary history. Employer contributions are tax-deductible and can be substantial, especially for older participants nearing retirement.

Key Benefits:

• Guaranteed lifetime income
• Very high tax-deductible contribution limits (often $200K+ annually)
• Tax-deferred investment growth within the plan

Best Fit For:

• Older business owners seeking large, predictable retirement income
• Stable companies with consistent profits
• Businesses where owners are older than the employee group

Charitable Remainder Trusts (CRTs)

CRTs allow donors to contribute appreciated assets (like a business or real estate) to an irrevocable trust, receive lifetime income, and leave the remainder to charity. This strategy defers capital gains taxes, provides income, and reduces estate taxes.

Key Benefits:

• Avoid immediate capital gains taxes
• Receive lifetime or term-based income
• Immediate charitable deduction
• Remainder goes to charity, creating legacy impact

Best Fit For:

• Business or real estate owners with appreciated assets
• High-income individuals looking to reduce taxes and support causes
• Those seeking a structured income stream during retirement

Premium Finance Life Insurance

Premium finance uses third-party lending to fund large life insurance policies, helping wealthy individuals obtain high death benefit protection while preserving their capital for investments. Often used in estate planning or business succession.

Key Benefits:

• Access to large insurance coverage with minimal out-of-pocket cost
• Preserve capital and cash flow for other uses
• Tax-deferred cash value growth and tax-free death benefit
• Helps cover estate tax liability or fund buy-sell agreements

Best Fit For:

• Individuals with net worths of $10M+
• Business owners doing succession or estate planning
• Clients with liquidity needs who still require life coverage

Considerations:

• Requires collateral and financial underwriting
• Must manage interest payments and exit strategy

Profit-Sharing Plans

Profit-sharing plans allow employers to make discretionary, tax-deductible contributions to employee retirement accounts. Combined with 401(k)s, these plans can help maximize retirement savings and reward employee performance.

Key Benefits:

• Employer-funded contributions up to 25% of compensation
• Flexible year-to-year funding
• Employee accounts grow tax-deferred
• Options like age-weighted and cross-tested plans can favor older or key employees

Best Fit For:

• Businesses with variable income looking for contribution flexibility
• Employers who want to control retirement benefit costs

Executive Bonus Plans (IUL-Based)

Executive Bonus Plans use permanent life insurance, such as Indexed Universal Life (IUL), as a non-qualified benefit for top employees. The employer funds premiums as a compensation bonus; the employee owns the policy and gains tax-advantaged retirement income.

Key Benefits:

• Tax-deductible bonus to the employer
• No IRS contribution limits or plan testing
• Tax-free policy loans for retirement income
• Tax-free death benefit to heirs

Variants:

• Single Bonus: Basic policy premium paid as income
• Double Bonus: Employer pays tax on behalf of employee
• Restricted Bonus: Adds a vesting schedule to retain key talent

Ideal For:

• Businesses needing to attract/retain executives
• Professionals looking to save beyond qualified plan limits

Buy-Sell Agreements Funded with Life Insurance

Buy-Sell Agreements ensure smooth business succession if an owner dies, becomes disabled, or exits the company. Life insurance is used to fund the agreement, providing tax-free liquidity for ownership transitions.

Structures:

• Cross-Purchase: Owners insure each other
• Entity-Purchase: Business owns and benefits from policies
• Wait-and-See: Combines both approaches

Key Benefits:

• Immediate liquidity from tax-free death benefit
• Prevents family and legal disputes
• Enables business continuation without loans or asset liquidation

Ideal For:

• Partnerships and family businesses
• Business owners seeking structured succession plans