Who does what
A cash balance plan has several roles. For a business whose only workers are the owner and a spouse, most of them fall to the owner.
| Role | Who | What it involves |
|---|---|---|
| Plan sponsor | Your business | Adopts the plan, makes the contributions and takes the deduction |
| Trustee | You | Holds the plan's money in a trust account, chooses the investments, and is the only person who can move money |
| Plan administrator | You | Responsible for running the plan: signing the documents and filings, filing them on time and keeping records |
| Enrolled actuary | An independent professional | Certifies each year's contribution range and signs the funding schedule |
| Plan provider | The firm you hire | Designs the plan, prepares the plan documents, fills in the tax ID and brokerage forms, and prepares the yearly filings |
| Brokerage firm | A firm such as Schwab or Fidelity | Holds the account in the plan's name |
Being plan administrator is a little like being responsible for your own tax return when someone else prepares it. The provider does the preparation. You read what they give you, sign it, and file it by the deadline.
The steps, in order
- Check that you qualify. A solo plan covers only the owner and a spouse. Any common-law employee, or a related business with employees, changes the picture. See who can have a solo cash balance plan.
- Get an estimate. Your age, pay, years in the business and any existing retirement plan decide the range. The calculator gives a first figure in a few minutes.
- Confirm your details and design the plan. You supply the business's legal name and tax ID, your date of birth and your pay for the last three years. The plan's formula is built from these, not from the estimate.
- The actuary confirms the range. An enrolled actuary checks the design against your verified pay and sets this year's minimum and maximum contribution.
- The plan documents are prepared. Usually an adoption agreement, a trust agreement and a summary plan description, written on a pre-approved plan document.
- Your business adopts the plan. You sign as the business adopting the plan and again as trustee. The date the business signs is what counts for the adoption deadline.
- Apply for the plan's tax ID. The plan's trust needs its own employer identification number (EIN), separate from the business's.
- Open the plan's brokerage account. The provider fills in the application for the firm you choose, in the plan's name and under the plan's tax ID. You sign and send it.
- Choose the investments. As trustee, you decide how the account is invested.
- Make the first contribution. Move money from the business's bank account to the plan's brokerage account, anywhere in your range, by the deadline.
- Every year after that: send year-end figures, the actuary values the plan and sets the next range, and once plan assets pass $250,000 you sign and file Form 5500-EZ.
Designing the plan
Design is where the plan's formula is set. For a one-person plan the main choices are:
- the pay credit, the amount added to your account each year, usually set close to the most the rules allow for your age and pay
- the interest credit, either a fixed rate or the actual return the plan's investments earn
- the normal retirement age, often 62
- how the plan fits with any Solo 401(k) or SEP IRA you already have
The last point matters for the numbers. When a business sponsors both a cash balance plan and a 401(k), employer contributions to the 401(k) are generally held to 6% of pay because of the combined deduction limit. Your own salary deferrals are not affected. A SEP IRA opened on the IRS model form cannot be kept alongside a qualified plan in the same year, so it is worth raising at this stage. See using a cash balance plan with a Solo 401(k).
The plan documents
A pre-approved plan document is a standard plan that has already been reviewed by the IRS, which issues an opinion letter on it. Your business adopts it by completing and signing an adoption agreement that records your choices: the pay credit formula, the interest crediting method, the retirement age and so on. The business can rely on the opinion letter rather than applying to the IRS for its own ruling.
The trust agreement sets up the trust that holds the plan's money and names you as trustee. The summary plan description explains the plan in plain terms. Keep signed copies of all three: the brokerage firm may ask for pages from them, and later filings refer to them.
The plan's tax ID
The IRS treats the business and the plan's trust as separate taxpayers, so the trust gets its own EIN. You apply on Form SS-4 or through the IRS online application, which issues the number immediately for applicants with a US address. You are the responsible party, as trustee.
When the number is issued, save the confirmation letter. The brokerage firm will ask for it. The full walkthrough is in the plan's tax ID.
The brokerage account
The account is opened in the plan's name, under the plan's EIN, not the business's. Most large firms offer an account type for company retirement plans. Applications typically ask for the plan's name as it appears in the adoption agreement, the plan type (defined benefit), the date it was established, the trustee's details and an investment objective, and some want pages of the trust agreement attached.
This is usually the slowest part of setup. Several firms still use paper applications that must be signed in ink and mailed, and they get busy near year end. Starting it as soon as the documents are signed and the EIN is issued avoids a squeeze near a deadline.
Investments and the first contribution
How the account is invested is your decision as trustee. If your plan credits the actual return on its investments, your account rises and falls with them, and the rules allow that method only while the investments are diversified. A single stock, one sector or cryptocurrency would not meet that standard. See investing a cash balance plan's assets.
The contribution is a transfer from the business's account to the plan's account. Any amount between the year's minimum and maximum works, and it can be made in one payment or several. Keep a record of each deposit and its date, because the actuary uses both.
When to start
A plan does not have to be signed by December 31 to count for 2026. Under IRC 401(b)(2), a business can adopt a plan after the year ends, up to the due date of its tax return including extensions, and treat it as adopted on the last day of the year. For an S corporation that is September 15, 2027, with an extension filed.
Two things argue for starting earlier. The first year's minimum required contribution is due September 15, 2027, whatever the business's return date. And if you own an S or C corporation, the plan counts only the W-2 wages paid during 2026, which you cannot change after the 2026 payroll closes on December 31, 2026. Every date is in cash balance plan deadlines.
How long it takes
From signed documents to a funded account is often a few weeks. The EIN takes minutes online. Preparing documents takes days. The brokerage application can take one to several weeks depending on the firm and the time of year.
Maxed prepares the documents, calculations and forms and tells you whose turn each step is; you sign, apply for the EIN, open the account and make the contributions. Whoever you use, ask for the list of what you will be asked to sign and when, so there is nothing to discover at the last minute.