High-net-worth individuals have a constant need to maximize their bottom line. One effective way to accomplish this goal is to generate higher tax deductions. It’s important to not overlook the role that a properly designed retirement plan can play in helping you shield more of your income from the tax collector while increasing your retirement savings.

Cash balance and defined benefit plans enable successful business owners to keep more of their income while providing an enhanced retirement benefit.

For the sole proprietor who would like a tax deduction greater than the 25%/$49,000/$54,500 annual maximum allowed in a defined contribution plan, adding a traditional defined benefit plan can generate significantly greater contributions and tax benefits.

For the owner of a successful business with two or more employees, the addition of a cash balance plan can not only reduce overall staff pension costs, but also increase the owner’s own retirement savings and significantly boost his or her tax deduction.

A cash balance plan is a defined benefit retirement plan with an unusual contribution feature. It can be used by the business owner who wishes to benefit key employees and would like to make deductible contributions greater than the maximum annual amount that can be made on behalf of a participant in a defined contribution plan (currently $49,000 and $54,500 for participants older than 50). Maximum contributions in a cash balance plan depend on the age and compensation of an individual, with allowable annual contributions sometimes as high as $200,000. The older the individual, the sooner the assumed retirement age and the higher the potential benefits. The ultimate benefit is dictated by the terms of the cash balance plan, with the business owner responsible for all investment returns.

If you already have a 401(k) plan, this is a great time of year to see if adding a defined benefit plan or a cash balance plan makes sense for you.

Tom Zgainer, Senior Vice President of Sales for ExpertPlan Inc, has helped more than 2,200 small businesses with their retirement plans over the past decade.