The short version
| Solo 401(k) | Cash balance plan | |
|---|---|---|
| Kind of plan | Defined contribution | Defined benefit |
| What the law caps | What goes in each year | What the plan may pay out at retirement |
| 2026 limit | $72,000, plus a catch-up from 50 | Set by age, pay and years in business; often several times the 401(k) figure |
| Who sets the amount | You, any amount up to the limit, including nothing | An actuary sets a minimum and a maximum; you choose within it |
| Required each year | No | Yes, at least the minimum required contribution |
| Salary deferrals and Roth | Yes | No. All money comes from the business |
| Investment results | Go straight to your account | Credited to your account under the plan's formula, and they change future contributions |
| Yearly work | Form 5500-EZ once assets pass $250,000 | An actuarial valuation every year, plus Form 5500-EZ once assets pass $250,000 |
| Typical cost | Low, often a few hundred dollars a year or less | A few thousand dollars a year |
Limits by age
A Solo 401(k) has the same ceiling at every age: $72,000 of combined employee and employer money under IRC 415(c), plus a catch-up of $8,000 from age 50, or $11,250 at ages 60 to 63.
A cash balance plan is capped by the benefit it can pay at retirement: up to $290,000 a year for life, or 100% of your average pay if lower (IRC 415(b)). The plan funds that benefit over the years you have left, so the allowance grows as retirement gets closer.
| Age | Solo 401(k) alone | Cash balance plan | Both |
|---|---|---|---|
| 35 | $72,000 | $77,000 | $123,000 |
| 40 | $72,000 | $103,000 | $149,000 |
| 45 | $72,000 | $156,000 | $202,000 |
| 50 | $80,000 | $201,000 | $255,000 |
| 55 | $80,000 | $260,000 | $314,000 |
| 60 | $83,250 | $270,000 | $327,000 |
Under about 35 the difference is small, and a Solo 401(k) alone often does the job. From the early 40s the cash balance figure pulls away, and by the mid-50s it is several times the 401(k) limit. A sole proprietor's figures are a little lower, because the 6% is measured on earned income after the contributions themselves. See how much you can contribute for the rules behind these numbers, or the limit at every age.
Flexibility against commitment
This is the real trade-off. A Solo 401(k) asks nothing of you. In a strong year you fill it; in a weak year you put in less or nothing, and there is no penalty.
A cash balance plan is a promise the business makes to fund a benefit. Each year an enrolled actuary works out a range, and the business has to put in at least the minimum by the deadline. Missing it brings a 10% excise tax on the shortfall. The IRS also expects the plan to be permanent, which in practice means keeping it for several years unless your circumstances change.
The range is often wide once the plan is running, and many owners pick a figure each year depending on how the business did. If income falls sharply, the plan can be amended to lower future credits, frozen or closed, but timing matters. See minimum contributions and lean years.
Cost and paperwork
A Solo 401(k) is cheap to run. Many brokerages offer a free or low-cost plan document, and the only filing is Form 5500-EZ once the plan's assets pass $250,000.
A cash balance plan needs more: a plan document, an actuarial valuation every year with a funding schedule the actuary signs, and the same Form 5500-EZ. Providers typically charge a few thousand dollars a year for a one-person plan. See what a cash balance plan costs.
Two practical points when you run both. The $250,000 test for Form 5500-EZ adds the assets of all your one-participant plans together, so once the combined total passes it, each plan files. And each plan's trust needs its own tax ID; the IRS issues only one per responsible party per day.
Who each suits
A Solo 401(k) on its own tends to suit you if:
- you are under about 40, when the cash balance advantage is modest
- your income swings a lot from year to year
- you want to save up to about $72,000 a year and no more
- you want Roth contributions or the option of a plan loan
Adding a cash balance plan tends to suit you if:
- you already fill your Solo 401(k) and want to save more before tax
- you are in your 40s, 50s or 60s
- you expect steady, high income for at least the next three to five years
- you have no employees other than your spouse
Why most owners run both
Adding a cash balance plan does not replace the 401(k). The two sit side by side and the limits mostly stack:
- Salary deferrals are untouched. Your own $24,500 deferral, and any catch-up, do not count toward the combined deduction limit that links the two plans.
- Employer profit sharing is held to 6% of pay. Because an owner-only pension is outside the government's insurance program, a combined deduction limit applies. Employer 401(k) contributions of up to 6% of pay are disregarded; above that they start to eat into the cash balance deduction. At pay of $360,000 or more, 6% is $21,600.
- The cash balance plan does the heavy lifting. Almost all of the extra room comes from the pension; the 401(k) adds the deferral, the catch-up and the 6%.
The rules, including how they differ for S corporations and the self-employed, are in using a cash balance plan with a Solo 401(k). You can compare both plans for your own figures with the comparison calculator.