As a successful automotive dealer principal, you have fine-tuned every part of your operation — from inventory management to customer satisfaction, marketing to manufacturer relationships. But one critical system might still be under optimized: your retirement plan.
Many dealer principals hit a wall once they max out their 401(k) and profit-sharing contributions. If you are in that boat, you are not alone. You, however, are certainly not out of options. In fact, a lesser-known but incredibly powerful solution could put your long-term financial engine into overdrive: the cash balance plan.
Whether you are trying to reduce your tax liability, accelerate your retirement savings, or retain top talent, cash balance plans offer a flexible, high-octane strategy to which more and more high-income entrepreneurs are turning.
What Is a Cash Balance Plan?
A cash balance plan is a type of defined benefit retirement plan that blends characteristics of traditional pensions and modern 401(k) plans. But while 401(k)s limit your annual contributions to around $70,000, as of 2025 ($77,500, if you are over 50), a cash balance plan allows much higher contributions — typically $100,000 to over $300,000 per year, depending on your age and income.
Here is how it works. Each year, your business makes a contribution to the plan on your behalf (and, optionally, for select employees). That contribution is tax-deductible, and the funds grow tax-deferred until withdrawal. It is an ideal tool for high-income earners seeking meaningful ways to reduce taxable income while building significant retirement wealth.
Importantly, these plans are employer-sponsored and employer-funded but highly customizable. With a good plan design and proper actuarial support, you can tailor the structure to prioritize benefits for owners and leadership while offering fair — but limited — participation for other employees.
Why Cash Balance Plans Work for Auto Dealerships
Cash balance plans are not for every business, but for automotive dealerships they often fit like a glove.
Dealerships tend to have consistent and substantial profits, stable ownership structures, a long-term vision for succession or sale, and high-performing key executives who deserve to be retained.
These characteristics make cash balance plans especially advantageous. The plans reward consistent profitability and allow flexibility in directing contributions to business owners and key personnel. Better yet, the ability to combine them with existing 401(k)/profit-sharing plans makes them even more attractive from a retirement and tax perspective.
Real-World Example: Turbocharging Wealth While Retaining Talent
Let’s take a real case study from one of our clients in New England. A dealer principal earning $600,000 annually had already maxed out her 401(k) and profit-sharing plan contributions. By adding a cash balance plan, she was able to contribute over $250,000 more each year and reduce her annual tax bill by six figures. Over 10 years, she accumulated a retirement nest egg of almost $3 million in her cash balance account. Even better? She offered partial plan participation to two top managers as part of a retention strategy, helping her solidify a strong leadership bench and avoid costly turnover.
That is the kind of smart, strategic planning that separates high-performing business owners from the rest.
More Than Tax Savings: A Versatile Strategic Tool
While the immediate tax benefits of a cash balance plan are often what draw business owners in, its strategic flexibility is what makes them stay. Here are just a few of the long-term planning advantages:
- Succession and Exit Planning: When passing the dealership to the next generation or preparing for a sale, having a robust retirement plan already in place can streamline the process and reduce overall tax friction. Additionally, if part of your exit plan involves phased withdrawal or buyout, the cash balance plan can serve as a transitional income vehicle.
- Retention of Key Executives: Offering cash balance plan benefits to essential leaders in your dealership creates a “golden handcuff” effect — increasing loyalty, boosting morale, and lowering costly leadership turnover.
- Adaptable for Changing Business Needs: Contrary to common misconceptions, cash balance plans are not rigid. They can be adjusted, paused, or terminated if your business environment changes, such as during a downturn or after a sale. With the help of a skilled third-party administrator, you maintain flexibility while reaping the benefits during high-income years.
What You Need to Know Before You Start
Cash balance plans are governed by the Employee Retirement Income Security Act (ERISA), and they require actuarial oversight and annual funding commitments. However, do not let that scare you away; an experienced team can ensure the setup and administration are straightforward and efficient. You will need:
- A retirement plan advisor to help design and implement the plan;
- An actuary to certify the required contributions annually;
- A TPA (third-party administrator) to handle compliance, reporting, and participant notices; and
- A CPA who understands how to integrate the plan into your broader tax strategy
With this professional team, your cash balance plan becomes a powerful extension of your financial engine — not a burden.
Take the Wheel: Your Next Steps
If you are already maxing out your 401(k) and profit-sharing contributions or if you are looking for ways to reduce taxable income while investing in your future, a cash balance plan deserves serious consideration.
It is not just about saving more; it is about planning better. Whether your dealership is family-owned, private-equity backed, or on the path to a future sale, aligning your retirement and business strategies can open the door to greater financial freedom.
Let’s start the conversation. The road to a more powerful retirement begins with a single shift, and we are here to guide the way. Contact Twelve Points Business Advisors to explore how a customized cash balance plan could supercharge your financial strategy.
Twelve Points Business Advisors is proud to have joined the Massachusetts State Automobile Dealers Association. An insightful article written by our very own Dave Clayman will be featured in the official monthly publication of Massachusetts Auto Dealer every month. Jump to page 70 to view his insight in the July edition.