Cash balance plans, explained.
How the plans work for people who work for themselves: what you can put in, when, what it saves, and what running one involves. Every figure comes from the same calculations as your estimate.
The basics
- What is a cash balance plan?A cash balance plan is a pension plan with an account balance. How it works, how much a business owner can put in, and how it differs from a 401(k).
- Cash balance plan vs Solo 401(k)How a cash balance plan and a Solo 401(k) compare on limits by age, flexibility, cost and paperwork, and why most owners who add one keep both.
- Cash balance plan vs SEP IRAHow a SEP IRA and a cash balance plan compare, why a model SEP can't run beside another plan, and what to do if you already put SEP money in this year.
- Cash balance plan vs traditional defined benefit planBoth are pensions under the same limits. How an account balance differs from an annuity formula, how lump sums and interest work, and which suits one owner.
How much and who
- How much can you contribute to a cash balance plan?Cash balance plan limits for 2026 by age, and why: the 415(b) benefit limit, the ten-year phase-ins, interest rates, income limits and the yearly range.
- Who can have a solo cash balance plan?A solo cash balance plan covers only the owner and spouse. Who qualifies, when co-owners, related businesses, contractors or family on payroll change that.
- Using a cash balance plan with a Solo 401(k)How the combined deduction limit links a cash balance plan and a Solo 401(k): the 6% of pay rule, why deferrals don't count, and S corps vs the self-employed.
- A W-2 job and a side businessWith a job and consulting income, your side business can sponsor its own cash balance plan. Which limits you share with your employer and which you don't.
Setting up
- How to set up a cash balance planEvery step from checking you qualify to the first contribution: plan design, the actuary, plan documents, the plan's tax ID, the brokerage account and funding.
- Cash balance plan deadlines for 2026When to adopt, pay yourself, contribute and file for a 2026 cash balance plan, for sole proprietors, partnerships, S corporations and C corporations.
- What does a cash balance plan cost?What a one-person cash balance plan costs to set up and run, what the fees pay for, the costs that come later, and the investment costs on top.
- Getting a tax ID for your cash balance planWhy a cash balance plan's trust needs its own EIN, how to apply online, the one-EIN-a-day limit, and what the brokerage asks for when you open the account.
Tax
- Cash balance plans for S corporation ownersFor S corporation owners, only W-2 salary counts toward a cash balance plan. How salary sets the limit, what it costs in payroll tax, and the year-end deadline.
- Cash balance plans for sole proprietors and single-member LLCsHow a sole proprietor's plan pay is worked out from net profit, why the math is circular, where the deduction goes, and what it does and does not reduce.
- Cash balance plans for partners and multi-member LLCsA partnership, not a partner, sponsors the plan. How each partner's pay is measured, how benefits can differ between partners, and what needs agreeing first.
- The QBI deduction and retirement contributionsRetirement contributions also reduce the 20% QBI deduction. Why that trims the tax saving for most owners, and can add to it near the 2026 thresholds.
- States that tax retirement contributions for the self-employedPennsylvania, New Jersey and Massachusetts do not let sole proprietors and partners deduct plan contributions. What that costs, and how it comes back.
- Roth catch-up contributions: the $150,000 wage ruleFrom 2026, 401(k) catch-ups must be Roth if last year's wages from the employer topped $150,000. Who it affects, and why the self-employed are not.
Running the plan
- Minimum contributions and what to do in a lean yearA cash balance plan has a required minimum every year. What sets it, what to do when income falls, and how to lower, freeze or end the plan if you must.
- How cash balance plan money is investedWho picks a cash balance plan's investments, how actual return crediting works, the payout floor, the diversification rule, and why returns move contributions.
- Form 5500-EZ for a cash balance planWho must file Form 5500-EZ for a one-participant cash balance plan, the $250,000 test, the July 31 due date, extensions, e-filing, and late-filing penalties.
- Closing a cash balance planWhen it is reasonable to close a solo cash balance plan, the steps from resolution to final Form 5500-EZ, and what happens if assets fall short or run over.
- What happens to a cash balance plan when you hireOnce a new employee meets a solo cash balance plan's age and service rules, coverage testing and ERISA apply. What counts, how long you have, and your options.
Tools and references
- CalculatorsCash balance, Solo 401(k) and SEP IRA limits, side by side, and your deadlines.
- Limits by ageThe 2026 IRS limits and the most you could contribute at every age from 30 to 70.
- By stateWhat a contribution saves in state tax, and the states that tax it.
- By professionPhysicians, consultants, attorneys, engineers and more.
- GlossaryEvery term, in plain language.
Find your own number.
Answer a few questions about your business to see what you could put away this year and what it would save you in tax. About three minutes.
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