Cash Balance "Combo" Plans
Dr. Abe Erskine has strong income, a growing practice, and a tax bill he does not like. He also has a retirement savings gap. A cash balance Combo Plan may help with both.
Use this article when taxes and retirement catch-up are connected.
Useful when the business can support larger retirement contributions and plan costs.
Modeled tax savings paired with a $200,000 owner retirement contribution.
The strategy needs annual discipline, employee funding, and plan administration.
The case looks at a business owner who wants a larger retirement contribution and a better tax result without ignoring employee plan costs.
He wants to reduce taxes and catch up on retirement.
Like many business owners, Dr. Erskine invested in his family first and his business second. Near age 60, he realized his current savings pace might not support the retirement income he wanted.
$107,479 was his tax bill last year. He wanted help lowering it.
He was not sure he had enough saved for the retirement he wanted.
The numbers behind the case.
Dr. Erskine owns Vita-Ray Health, an LLC filing as an S corporation. The practice has five employees, $500,000 of income after business expenses, and a $107,479 tax bill from the prior year.
Start with the tax return.
The first goal is direct: reduce the tax burden. The source example shows before, after, and impact panels tied to Form 1040 lines, then explains that the larger tax savings came from the plan design behind the return.
Before
After
Impact
The plan strategy in the example provides $60,628 in tax savings while raising Dr. Erskine's retirement contribution from $30,000 to $200,000.
The design pairs a 401(k) with a cash balance pension plan.
Before the review, Dr. Erskine used a SEP IRA. His team moved him to a retirement plan design that combines a cross-tested 401(k) plan with a cash balance pension plan.
The plan is useful only if the larger deductible contribution, employee costs, and administrative work all fit the business.
The owner contribution changed, and so did the cost.
The SEP IRA design allowed Dr. Erskine to contribute $30,000 for himself. The Combo Plan raised his modeled owner contribution to $200,000. It also raised the employee plan cost from $21,640 to $31,000.
Owner contribution
Employee plan cost
Of each plan dollar went to Dr. Erskine.
Owner contribution
Employee plan cost
Of each plan dollar went to Dr. Erskine.
The owner share explains why the design may be worth the extra work. Under the SEP IRA, 58% of each plan dollar went to Dr. Erskine. Under the Combo Plan, 89% did. Employees still received more dollars than before in the modeled plan.
The bigger contribution closed the modeled income gap.
The tax result mattered, but retirement savings was the other goal. Dr. Erskine wanted $20,000 of monthly income at age 67. With the SEP IRA alone, the example shows a shortfall. With the Combo Plan, the modeled shortfall falls to $0.
Before - SEP IRA
After - Combo plan
Dr. Erskine had two goals.
He wanted to reduce taxes and increase retirement savings. The Combo Plan example addresses both: a larger owner contribution, more retirement dollars for employees, and a modeled retirement income result that meets his target.
How the plan dollars were allocated.
SEP IRA census
Combo plan census
Retirement savings calculation.
The example uses a future value calculation for both plans, then adds the $1,500,000 business value at retirement. It applies a 4% withdrawal rate and supplements the result with age 67 Social Security estimates.
This article is educational and is not individual tax, accounting, legal, or plan design advice. Coordinate with your CPA, attorney, third-party administrator, actuary, and planning team before acting.
Bring the retirement plan question into a planning conversation.
We can help frame the planning side of the question while you work with your CPA, plan administrator, and other advisors.
- Start with cash flow, employee costs, and owner goals.
- Coordinate plan design with your CPA and plan administrator.
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