Cash Balance Plan vs 401(k)

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 13, 2022

A cash balance plan is similar to a 401(k); it is an employer sponsored retirement package that grows over the employee's time at the company. However, unlike a 401(k), a cash balance plan grows either by direct contribution or by interest, rather than the performance of investments.

Can You Roll a Cash Balance Plan into a 401(k)?

You can roll over a cash balance plan into a 401(k) or an IRA by taking it out as a lump sum after leaving your job. There is no penalty to doing so even if it is done before retirement age (59  ½ years).

Cash Balance Plan vs 401(k) FAQs

What is a 401(k) plan?

A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.

What is a cash balance plan vs 401(k) plan?

Unlike a 401(k), a cash balance plan grows either by direct contribution or by interest. 401(k)s grow throgh the performance of investments.

What is the difference between a Roth 401(k) and traditional 401(k)?

With a Roth 401(k), taxes are paid as money is put into the retirement account. With a traditional 401(k), taxes are paid as money is taken out.

Are there other retirement savings plans other than a 401(k) plan?

Alternatives to 401(k) plans include traditional IRAs, Roth IRAs, pension plans (if your employer offers one), and 403(b) retirement plans for employees of non-profit organizations.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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