Retirement plans often come with clear annual contribution caps, but cash balance plans work differently. Instead of focusing on a set yearly limit, these plans aim for a predetermined balance at retirement age. That structure makes them especially attractive for high-earning business owners who want to save more than traditional defined contribution plans typically allow.
The amount you can put in each year isn’t the same for everyone. It depends on factors like your age, income, and how close you are to retirement. Because of this, an actuary must calculate and certify the exact figure.
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In this article, we’ll walk through the 2025 cash balance plan limits and the key factors that determine how much you can contribute.
📌 Also read: What is a Cash Balance Plan? How It Works, Features and Eligibility
Lifetime Limit
Cash balance plans allow significant tax-deferred savings, but they are not unlimited. The IRS sets a lifetime cap on the amount your account can hold, and this figure is adjusted each year for inflation.
✅ For 2025, the lifetime limit is $3.5 million.
What this means in practice:
- Your account balance cannot exceed $3.5 million.
- Once you reach the cap, no further contributions are allowed.
- The account itself remains open, and investment growth may continue, but no new funds can be added.
✏️ Hypothetical Example:
If a 62-year-old business owner reaches the $3.5 million cap before retirement, contributions must stop. However, the existing balance can continue earning investment returns until distributions begin.
📝 Note: Lifetime limits apply across all cash balance plan assets, and contributions must always be certified by an actuary.
Annual Benefit Limit
When you retire with a cash balance plan, you can decide how to take your benefits:
✅ Lifetime annuity payments
✅ A lump-sum distribution
✅ A tax-free rollover into an IRA or 401k
If you choose annuity payments, the IRS caps the maximum benefit you can receive. The limit is the lesser of:
- 100% of your average compensation for your highest three consecutive years, or
- A dollar limit set annually by the IRS.
IRS Annual Benefit Limits
| Year | Maximum Annual Benefit |
| 2025 | $280,000 |
| 2024 | $275,000 |
| 2023 | $265,000 |
| 2022 | $245,000 |
| 2021 | $230,000 |
| 2020 | $230,000 |
| 2019 | $225,000 |
📌 Source: Notice 2024-80, 2025 Amounts Relating to Retirement Plans | IRS
✏️ Hypothetical Example: Suppose a participant’s highest three-year average compensation is $240,000. For 2025, the maximum benefit they can receive is $240,000 (since it is lower than the $280,000 IRS cap).
📝 Note: These limits apply only to annuity benefits. Lump-sum distributions or rollovers are calculated based on actuarial values but remain subject to overall IRS contribution and funding rules.
Annual Compensation Limit
The IRS sets a maximum amount of annual compensation that can be used when calculating cash balance plan contributions. This ensures contributions remain proportional and within tax-qualified limits.
✅ For 2025, the annual compensation cap is $350,000.
IRS Annual Compensation Limits
| Year | Maximum Compensation Considered |
| 2025 | $350,000 |
| 2024 | $345,000 |
| 2023 | $330,000 |
| 2022 | $305,000 |
| 2021 | $290,000 |
| 2020 | $285,000 |
📌 Source: COLA increases for dollar limitations on benefits and contributions | IRS
✏️ Hypothetical Example: Even if a business owner earns $1 million in 2025, only $350,000 can be counted toward contribution calculations. A $100,000 contribution equals 28.6% of the $350,000 cap, not 10% of the full $1 million income.
What Counts as Compensation?
- Incorporated businesses: W-2 wages.
- Unincorporated businesses: Net earned income from self-employment, reduced by self-employment tax.
Example Contribution Limits for 2025
Contribution limits in a cash balance plan are not the same for everyone. They must be calculated and certified by an actuary, since the amount depends on several factors, including:
✅ Your age
✅ Your compensation
✅ Your target balance by retirement age
✅ The demographics of your business
Illustrative 2025 Contribution Ranges
| Age Range | Cash-Balance Plan Max Contribution | Combined 401k + Cash Balance Total |
| 60 – 65 | $342,000 | $419,500 |
| 55 – 59 | $280,000 | $357,500 |
| 50 – 54 | $218,000 | $295,500 |
📝 Note: These amounts assume the 2025 compensation cap of $350,000. Actual contribution limits will vary based on your plan design and must be confirmed by an actuary.
401k Profit Sharing Adjustment
When pairing a cash balance plan with a 401k, the profit sharing limit drops to 6% of compensation. Normally, the cap is:
- 25% for incorporated businesses.
- ~20% for unincorporated businesses.
✏️ Hypothetical Example: A 60-year-old business owner with only a 401k could contribute around $108,500 in 2025. By adding a cash balance plan, their combined contributions could reach $419,500 — an increase of more than $311,000 in tax-deferred savings.
📝 Note: Contribution strategies should always be coordinated with both your actuary and CPA to maximize deductions without exceeding IRS limits.
How Much Can You Contribute to a Cash Balance Plan in 2025?
Contribution limits for cash balance plans vary for each participant and must be calculated by an actuary. The formula considers factors such as:
✅ Your age
✅ Your level of compensation (subject to the $350,000 cap in 2025)
✅ Your desired balance at retirement
✅ Whether you have employees (since employer contributions to participant accounts are required each year)
In 2025, typical cash balance contributions range from $100,000 to $400,000 annually, depending on age and income.
Wrapping It Up
Cash balance plans can offer much higher contribution limits than a 401k alone, making them an attractive option for high earners and business owners who want to accelerate retirement savings.
Contribution amounts vary based on age, income, and plan design, so working with an actuary is essential to ensure compliance and maximize benefits.
📌 Want to explore more retirement strategies and plan comparisons? You might find these articles helpful:
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