A Solo 401(k) is a great bucket. It is not the biggest bucket.
A cash balance plan is a defined benefit pension wearing a simpler statement. The company promises a hypothetical account that grows with a set interest credit. The deduction can be much larger than 401(k) employee-plus-profit-sharing when the actuary says the funding target is high, usually because you're older and profit is consistent.
This is over-$400K territory for most people. Under that line, max the simple plans, clean the entity, and stop paying for a pension you can't fund. The tax code is built for business owners. This tool is one of the ones the wealthy use. Regular people can use it too. You just need the profit to match the promise.
September is when a lot of owners finally look at this because the extended S-corp return is due and the actuary needs numbers. The plan generally must be adopted by year-end. Funding can often wait until the tax-return deadline including extensions. Don't mix those two dates up.
Why this is not a "turbo 401(k)"
A 401(k) has published employee and employer caps. A defined benefit plan has a funding target from an actuary. Good years, you contribute a lot. Bad years, you may still owe a contribution. That's the trade.
Example: A 52-year-old consultant with $480K profit already maxes a Solo 401(k) around the usual combined cap. A cash balance plan on top might allow another six figures of deductible funding in a given year, depending on age, compensation, and existing plans. A 32-year-old with lumpy $180K years cannot copy that number. The actuary will not invent age.
Think of a personal trainer who actually spots the weight. The plan document is the workout. The TPA and actuary implement it. You don't "DIY a pension" in QuickBooks.
Not knowing your numbers is like driving without GPS. Promising a cash balance contribution off a bank-balance vibe is how you starve payroll in March.
Cash balance vs Solo 401(k)
| Factor | Solo 401(k) / 401(k) | Cash balance / defined benefit |
|---|---|---|
| Size | Capped, familiar | Can be much larger at older ages |
| Flexibility | Skip employer contrib in a thin year (with rules) | Funding target is less optional |
| Employees | Solo is solo; with staff, testing applies | Staff coverage and contributions can get expensive |
| Admin | Cheaper | Actuary, TPA, PBGC in some cases, annual work |
| Who it fits | Most profitable owners as a first max | High, stable profit; older owners; few employees |
If you have a team, "I'll just put myself in a huge plan" can force contributions for staff. That's a design conversation, not a LinkedIn flex.
Who this is for (and who should wait)
Consider it if:
- Profit is high and not a one-year fluke
- You're willing to fund in down years or design for that risk
- You already have reasonable salary and clean books
- You're past "should I even have an S-corp" and into "taxes are one of my biggest bills"
Wait if:
- You're still deciding S-corp vs LLC
- Revenue is spiky and you'd raid the plan conceptually (you can't treat it like a checking account)
- You want zero tax. We don't promise that. A big deduction is not a zero bill.
Right now advanced tax strategy isn't where your focus should be if you're not losing money to tax at this scale. Go make more first, get structure clean, and when you're at that level come back and we'll go to work.
This is not legal or investment advice. Plan documents, investments, and ERISA issues belong with the right licensed people. That's a legal call when it is. I want you protected. Get your attorney on it before you move on the employment-law and plan-sponsor side.
The short version
- Cash balance is a defined benefit plan with a statement that looks like an account.
- Deductions can dwarf a 401(k) when age and profit support the funding target.
- Adopt by year-end. Funding deadlines follow the return, including extensions, in many designs.
- Employees change the math. Admin is real.
- Under $400K, max simpler plans. Over that, this is a serious lever.
FAQs
What is a cash balance plan?
A defined benefit pension that shows a hypothetical account balance with pay credits and interest credits, funded to an actuarial target.
Can I have a 401(k) and a cash balance plan?
Often yes, as a combo, with testing and deduction limits coordinated. That's plan design, not a default.
When must I set the plan up?
Generally the plan must be established by the end of the tax year you want it for. Funding may be later. Confirm with the TPA.
What if my profit crashes next year?
You may still have a required contribution. That's why lumpy businesses should be careful.
Is this the same as a SEP IRA?
No. SEP is a defined contribution formula with simpler rules and lower typical ceilings than a well-designed defined benefit for an older high earner.
Does this replace tax planning?
No. It is one shelter inside year-round planning. You still need estimates, entity, and books.
References
- IRS — Choosing a retirement plan
- IRS — Defined benefit plan
- IRS — Publication 560, Retirement Plans for Small Business
- IRS — One-participant 401(k) plans
What to do next
Maxing a 401(k) and still handing the IRS a six-figure check?
At CEOHAVEN, we help entrepreneurs and real estate investors with tax planning, tax preparation, and bookkeeping. You should only open a cash balance plan if the profit and the temperament can fund it.
Book a call. We'll look at age, profit stability, and whether a defined benefit layer belongs next to your 401(k).
It's not about how much you make. It's about how much you keep.