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

A 55-year-old solo dentist nets $750,000 in pass-through income from her practice. She maxes her Solo 401(k) every year. She still owes well into six figures in federal tax. The question on r/whitecoatinvestor and Bogleheads forums comes up constantly: is there anything legal that lets a solo professional shelter a quarter-million dollars or more in a single year? Yes. It is called a Cash Balance Plan, and most accountants do not bring it up because it requires an actuary to run.

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.

How a Cash Balance Plan Works

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.

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.

The Tax Savings on $750,000 of Net Income

Layer a conservative Cash Balance contribution of $200,000 onto a maxed Solo 401(k) of $80,000. That is $280,000 of deductible retirement funding in a single tax year. At a combined federal marginal rate of 35%, the deduction saves roughly $98,000 in federal income tax. State tax (call it 5% to 9% in most practice jurisdictions) adds another $14,000 to $25,000 of relief. The dentist converts six figures of would-be tax payments into her own compounding retirement balance.

Interest-rate context matters. The federal funds rate sits at about 3.8%, down 75 basis points from a year ago, and the 10-year Treasury yields about 4%. Lower IRS segment rates, which track Treasury yields, increase the present value of a future pension benefit, allowing larger current-year contributions for older participants. The window is more favorable than it was in 2023 and 2024.

The Trade-Offs

Cash Balance Plans are not flexible. Once established, the plan must satisfy ERISA minimum-funding rules, meaning the actuarially determined contribution is largely mandatory each year. Skip a year and the IRS can disqualify the plan or impose excise taxes. Most solo practices run a Cash Balance Plan for five to ten years, then terminate and roll the balance to an IRA.

The plan also requires staff coverage if the dentist has any non-spouse W-2 employees. Non-discrimination testing typically forces 5% to 8% of pay in employer contributions for the staff, which most practices already provide through a 401(k) safe harbor. Plan administration runs $2,000 to $5,000 a year for the actuary and TPA combined, a rounding error against $98,000 of tax savings.

Mandatory funding is a feature for owners who otherwise spend what hits the checking account. The CPI sits in the 90th percentile of its 12-month range, and the national savings rate has fallen to 4% from about 6% in early 2024.

Three Steps Before Year-End

1. Pull last year’s K-1 or Schedule C and confirm net business income above $400,000 has been consistent for three years. Cash Balance Plans punish income volatility, so the strategy works best for stable practices.
2. Get a no-cost plan-design illustration from a credentialed actuary or TPA firm. Ask for the maximum deductible contribution at your exact age, plus a side-by-side showing the staff cost if you have employees.
3. Coordinate with your CPA so the Solo 401(k) profit-sharing piece does not violate the combined Section 415 limits. The plans must be drafted together; bolting one onto the other after the fact creates compliance headaches.

For an owner in the top brackets with a five-year runway to retirement, a Cash Balance Plan is the single largest legal tax shelter still available. The hard part is committing to the funding schedule. The math, on a $750,000 income, is not close.