The Cash Balance Plan Move That Lets Business Owners Defer $200,000 in a Single Year

"A Cash Balance Plan is a defined-benefit pension dressed up to look like a 401(k). Each participant has a hypothetical account credited annually with a "pay credit" (a percentage of compensation or a flat dollar amount) and an "interest credit" (a fixed rate, often 4% to 5%, or pegged to the 30-year Treasury). Because the IRS regulates the projected benefit at retirement under Section 415(b), not the annual contribution, older owners can fund far more than a 401(k) allows."

"In 2026, the IRS Section 415(c) defined-contribution cap is $72,000, and a participant age 50 or older can layer in a $8,000 catch-up, for $80,000 total. For a dentist clearing three-quarters of a million in net business income, that shelters roughly one dollar in ten. The rest gets taxed at a federal marginal rate of 32% to 35%, before state income tax and self-employment tax."

"For a 55-year-old in 2026, the maximum deductible Cash Balance contribution runs to roughly $262,000, on top of a Solo 401(k) elective deferral plus profit-sharing of around $80,000. The combined deductible total at age 55 reaches approximately $342,000 when both plans are designed properly together. The exact number depends on W-2 wages the practice pays the owner, plan-design assumptions, and the actuary's projection of accumulated benefit at the plan's stated retirement age."

A Cash Balance Plan is a defined-benefit pension structured to resemble a 401(k). Each participant receives a hypothetical account credited annually with a pay credit and an interest credit. The IRS limits the projected benefit at retirement under Section 415(b), which allows older owners to contribute more than typical defined-contribution limits. For 2026, the defined-contribution cap is $72,000, with an additional $8,000 catch-up for age 50 or older. A 55-year-old can potentially fund a Cash Balance Plan with roughly $262,000 deductible contributions, layered on top of Solo 401(k) contributions of about $80,000, for a combined deductible total near $342,000 when plan design and actuarial assumptions align. The remaining income is taxed at federal marginal rates plus state income tax and self-employment tax.

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