Retirement plans can only count pay for work. For a self-employed person that pay is earned income under IRC 401(c)(2): net earnings from self-employment, less the deduction for half of self-employment tax, less your own deductible plan contributions. It feeds the high-3 average and the percentage tests in the combined deduction limit, and it is capped at the $360,000 compensation limit.
It is also the ceiling on what you can deduct. IRC 404(a)(8)(C) limits a self-employed owner's deductible contributions to earned income figured before those contributions. On net profit of $300,000 in 2026, the deduction for half of self-employment tax is about $15,456, so no more than about $284,544 can be deducted across a cash balance plan and a 401(k) together, whatever the actuary's maximum.
Because the contribution reduces the earned income that supports it, the calculation is circular, and the plan's figures have to be solved so the two agree.
S and C corporation owners do not use earned income. Their plan pay is W-2 salary, and S corporation distributions never count. Rental and investment income do not count for anyone. See sole proprietors and single-member LLCs and S corporation owners.