Case Study: Using a Cash Balance Plan to Supercharge Retirement Savings and Slash Taxes

Client Type:

Service-based S-Corp in the photography industry with 15 employees and fast-growing income.

The Situation:

The business owner was seeing rapid growth — and with it, some hefty tax bills. Married and filing jointly with a spouse working as an engineer, their combined income put them in the top federal tax bracket (37%). They were already maxing out 401(k) contributions and wanted a solution to reduce their taxes without adding a bunch of work to their plate. With high income expected to continue for the next 3–5 years, this was the perfect window to act.

The Strategy:

We designed and implemented a 401(k) + profit sharing + Cash Balance Plan to unlock major retirement tax deferrals. Since the business didn’t yet have a 401(k), we were able to build the entire plan from scratch. Key steps:

• Coordinated with a TPA to structure the plan so only 4 of 15 employees needed to be included — keeping costs low and compliance intact.
  
• Increased the owner’s salary from $150K to $250K to qualify for higher contributions — the additional payroll taxes were minor compared to the tax savings.
  
• Ran multi-year projections to evaluate how much would need to go to employees vs. the owner and to plan future years of contributions.
  
• Carefully mapped out contribution timing to protect cash flow.
  
• Handled plan logistics and the employee census to minimize time demands on the owner.
  
• Adjusted estimated tax payments downward to prevent overpaying (a mistake made by the previous CPA).
  
• Claimed a $4,000 tax credit under the Secure 2.0 Act for starting the new 401(k).
  

The Results (Year 1):

• $302K total contribution across all plans
  
• $273K (90%) went to the owner
  
• $89K in federal tax deferral
  
• Retirement funds invested at a 5% expected return and tax deferral invested at ~7%
  
• Estimated $31K in permanent tax savings (assuming retirement in a 24% tax bracket)
  
• Admin fees of ~$3K offset by a $4K tax credit
  
• Employees gained a benefit they had been requesting — at minimal cost to the owner
  

Important Note:

These savings reflect only the federal deferral. Because the client lives in a no-income-tax state, there was no additional state savings — but if they were in a state like California, they would have seen another 9.3%+ in deferral on top of what was achieved here.

Long-Term Plan:

This was just Year 1. The client intends to repeat this strategy for the next five years — putting them on track to 5x both the retirement savings and the tax deferral. That’s over $1.5 million sheltered and potentially $450K+ in federal tax deferral alone.

What the Client Said:

They were ecstatic — not only about the tax win, but that it didn’t require a big lift on their end. A smart, streamlined solution with big long-term payoff.