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

Quick Read

• Cash Balance Plan lets 55-year-old dentist structure $280,000 annually ($80k Solo 401k positive $200k contribution), redeeming $98k national taxation astatine 35% rate.

• Establish program earlier year-end with actuary; mandatory yearly backing creates compliance work that cannot beryllium skipped without IRS penalties.

• Are you ahead, oregon down connected retirement? SmartAsset's escaped instrumentality tin lucifer you with a fiscal advisor successful minutes to assistance you reply that today. Each advisor has been cautiously vetted, and indispensable enactment successful your champion interests. Don't discarded different minute; larn much here.

A 55-year-old solo dentist nets $750,000 successful pass-through income from her practice. She maxes her Solo 401(k) each year. She inactive owes good into six figures successful national tax. The question connected r/whitecoatinvestor and Bogleheads forums comes up constantly: is determination thing ineligible that lets a solo nonrecreational structure a quarter-million dollars oregon much successful a azygous year? Yes. It is called a Cash Balance Plan, and astir accountants bash not bring it up due to the fact that it requires an actuary to run.

In 2026, the IRS Section 415(c) defined-contribution headdress is $72,000, and a subordinate property 50 oregon older tin furniture successful a $8,000 catch-up, for $80,000 total. For a dentist clearing three-quarters of a cardinal successful nett concern income, that shelters astir 1 dollar successful ten. The remainder gets taxed astatine a national marginal complaint of 32% to 35%, earlier authorities income taxation and self-employment tax.

How a Cash Balance Plan Works

A Cash Balance Plan is simply a defined-benefit pension dressed up to look similar a 401(k). Each subordinate has a hypothetical relationship credited annually with a "pay credit" (a percent of compensation oregon a level dollar amount) and an "interest credit" (a fixed rate, often 4% to 5%, oregon pegged to the 30-year Treasury). Because the IRS regulates the projected payment astatine status nether Section 415(b), not the yearly contribution, older owners tin money acold much than a 401(k) allows.

Are you ahead, oregon down connected retirement? SmartAsset's escaped instrumentality tin lucifer you with a fiscal advisor successful minutes to assistance you reply that today. Each advisor has been cautiously vetted, and indispensable enactment successful your champion interests. Don't discarded different minute; larn much here.

For a 55-year-old successful 2026, the maximum deductible Cash Balance publication runs to astir $262,000, connected apical of a Solo 401(k) elective deferral positive profit-sharing of astir $80,000. The combined deductible full astatine property 55 reaches astir $342,000 erstwhile some plans are designed decently together. The nonstop fig depends connected W-2 wages the signifier pays the owner, plan-design assumptions, and the actuary's projection of accumulated payment astatine the plan's stated status age.