Cash Balance Plan Freeze and Thaw Strategy: A Smarter Tax Move for Business Owners

Most high-income business owners are looking for ways to reduce taxable income, fast. One of the most powerful levers? A Defined Benefit (DB) or Cash Balance Plan, especially when paired with a 401(k).

But here’s the catch: business income isn’t always consistent. And many owners fear getting "stuck" with large, inflexible funding requirements.

Enter: the Freeze/Thaw Strategy.

It gives you aggressive front-loaded deductions, total control over future contributions, and the ability to redirect cash elsewhere — all without blowing up your plan or triggering IRS penalties.

• Employer credits a flat dollar amount or percentage of compensation annually
• Plan assets grow with a fixed or variable “interest crediting rate”
• Contributions are tax-deductible to the business
• Funded only by the employer, not employees
• Contributions are mandatory once the plan is active

For 2025, annual contributions can exceed $300,000, depending on age, compensation, and actuarial design. The older the business owner, the larger the allowable deduction.

• You must fund at least the actuarial minimum, even if your revenue dips.
• You can’t "skip" contributions without amending or freezing the plan.
• Terminating the plan can be complicated and may require lump sum distributions or rollovers.

This becomes a real issue for owners with:

• Cyclical income (consulting, construction, seasonal businesses)
• Cash flow priorities (debt repayment, business reinvestment, real estate)
• Exit or succession timelines within 3–5 years

The IRS allows plan sponsors to freeze a defined benefit or cash balance plan at any time—if the proper steps are followed.

A freeze means:

• No future benefit accruals
• No large required contributions
• Plan assets continue to grow tax-deferred
• Plan remains active and in compliance
• Employees (if any) must receive notice

You can later “thaw” the plan by amending it and resuming contributions.

Client: 52-year-old S Corp consultant

Income Pattern: $800K in peak years, $300K–$400K in others

Establishes Solo 401(k) + Cash Balance Plan

Annual Contributions:
→ $265K (CB Plan)
→ $31K (401(k))
→ Total = $296K tax deduction

AGI drops by nearly $300K per year

Nearly $1M accumulated in retirement assets in 3 years

Freezes CB Plan (in writing, with TPA and actuary)

Required contributions drop to administrative costs only

Redirects cash flow into:
→Real estate with accelerated depreciation
→Charitable DAF contribution for additional write-offs

Thaws CB Plan

Actuary recalculates funding based on new compensation and plan balance

Resumes high six-figure contributions at IRS-compliant levels

Here’s where the Freeze/Thaw strategy shines from a tax perspective. 

• Cash Balance Plan contributions are above-the-line deductions on the business return (Schedule C, 1120S, or 1065)
• They reduce taxable income dollar-for-dollar
• For S Corps or partnerships, the deduction flows through to your personal return

If your business can’t contribute the full amount in a low-income year, you can freeze the plan and wait. You aren’t required to “make up” missed contributions later.

Unlike bonuses or profit distributions, contributions to a DB plan are not taxable to the owner personally — they simply grow in the plan, tax-deferred.

By contributing large sums in high-income years and freezing in lean years, you can intentionally flatten your taxable income across time, stay out of top tax brackets, and avoid phaseouts.

While 401(k)s and SEPs have strict dollar limits, DB and CB Plans are actuarially determined. For older owners, the allowable contributions can be 5–10x higher.

This strategy is perfect for:

• Doctors joining/leaving a group
• Consultants or fractional execs with variable contracts
• Real estate developers or construction firms
• Business owners prepping for a liquidity event
• Firms with succession/retirement transitions underway

Huge tax savings now when income is high

Flexibility to pause and resume without IRS penalties

Cash flow redirection to other tax strategies:
✅ Oil & Gas IDCs (60–80% year-one deduction)
✅ Real Estate with Cost Segregation
✅ Charitable DAFs
✅ Roth Conversions in down years

Total control over plan lifecycle

Compounds tax-deferred growth even when frozen

• Model 5+ years of income and contributions with your actuary
• Document the freeze in writing, with the correct plan amendment date
• Notify employees (if applicable) under ERISA rules
• Monitor funding levels annually
• Work with a team that understands DB plans in the context of holistic tax strategy—not just retirement

For high-income business owners, the Cash Balance Freeze/Thaw Strategy transforms a rigid retirement structure into a precision tax deferral machine.

Use it to shrink your AGI, avoid top brackets, and build long-term wealth—without locking yourself into contributions you can’t sustain.

If you earn between $500K and $2M+ annually and want the flexibility to adjust your plan based on income cycles, this strategy could save you six figures in taxes while building a multi-million dollar retirement foundation.